Ailing small and medium-sized enterprises in Wenzhou, Zhejiang province, are struggling to pay back loans, which led to a 28-month peak for the nonperforming loan ratio at local banks in October.

The monthly NPL ratio at banks in the city increased from 0.37 percent in June 2011 to 4.31 percent in October 2013, a record-high in over two years, China Business News reported.

In October, the total amount of NPLs stood at 31.1 billion yuan ($5.1 billion), up 0.04 percent on a monthly basis. The city's NPLs increased 19.6 billion yuan in the past 10 months.

Starting from the end of 2010, Wenzhou has been suffering the effects of a financial crisis arising from widespread loan defaults by many hard-pressed factory owners and investors.

More than two years after the outbreak of the credit crisis, companies in the city are still going through tough times.

"Many local companies are no longer capable of standing the continuous losses. In the past two years, the majority of them only managed to make enough money to pay the interest on their loans," said Zheng Chen'ai, the chairman of the Wenzhou Chamber of Clothing Commerce.

In Zheng's association, 10 percent more companies shut down this year compared with last year, as they failed to generate enough profits to maintain production and still pay the interest on their loans.

"The current situation was caused by the previous ultra-loose loan policy and booming illegal fundraising activities. The crisis hit the companies' cash flows hard in 2011 when interest rates suddenly soared," said Zheng.

He added that more companies are expected to file for bankruptcy and close their doors from now until the beginning of 2014, which will probably bring another shock to the already lackluster economic situation in Wenzhou.

To deal with the bad-loan problem, the city government has been implementing a series of measures since the second quarter with six teams of local officials working on the issue.

"The city government wants to control new bad loans and solve the existing problems in some companies through restructuring processes and regular risk monitoring," said an official from the Wenzhou branch of the China Banking Regulatory Commission.

The official, who wished to remain anonymous, added that more organizations, including private financial management companies and other enterprises, were being encouraged to make contributions to deal with bad loans and boost the ailing companies' restructuring process.

Officials at local companies said that some of them are just barely surviving and that they have very low expectations.

"We don't have any plans or targets for next year. We'll probably only be able to pay the salaries and make the payments on the loans until the end of the year," said Ye Jianqing, the chairman of Wenzhou Zhenqing Optical Co Ltd.

Ye said that he hopes that next year will bring measures to support the region's struggling companies.

"The key method to solve the problem is to help the small and medium-sized enterprises get enough financial support from the central government so that they recover from the crisis as soon as possible and pay back their loans," said Zhou Dewen, chairman of the Wenzhou SME Development Association.

Companies in other regions also faced similar financial problems, but the situation seems to be more serious in Wenzhou, experts said.

"The sudden hike of the loans' interest rates and the sharp drop of profits were two major reasons behind the increase of the NPL ratio, which we saw in many regions in the country, but particularly in Wenzhou," said Jin Lin, a senior banking analyst at the Shanghai-based Orient Securities Co Ltd.