The Asia Global Payment Summit. Bali, Indonesia. 10-11 October 2019

Foreign Purchases of China’s Distressed Debt Doubled in 2018

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Foreign investors dramatically increased their acquisition of Chinese distressed debt last year, as domestic banks still struggle to contain bad loans in the world’s biggest market for non-performing assets.

Li Jiaqi, executive director at Shenzhen Qianhai Financial Assets Exchange, said to the Nikkei Asian Review that foreign purchases of Chinese distressed loans posted a year-on-year doubling in 2018 to reach 22 billion yuan (approximately USD$3.27 billion) in terms of book value.

Foreign buyers of Chinese distressed debt offloaded via bulk sales last year included Bain Capital, Lone Star Funds and Goldman Sachs, with many loans sold for 20 – 30% of their book value.

Tim Guo, partner at PwC China, said that China has emerged as the world’s biggest market for distressed debt at around $1.4 trillion in total, as domestic banks struggle to contain non-performing loans.

Data from China’s National Audit Office indicates that non-performing loans have surged in some parts of China, with 12 regional banks posting NPL ratios in excess of 20% in Henan province as of the end of 2018, and some even seeing levels rise to over 40%.

Figures from the China Banking and Insurance Regulatory Commission (CBIRC) indicate that the non-performing loans of Chinese banks rose by around 300 billion yuan in 2018 to reach 2 trillion yuan in total, despite the annual rate of disposal rising to around 1 trillion yuan.

Special-mention debt stood at 3.4 trillion yuan, bringing the total volume of distressed loans to 5.4 trillion yuan, for an 80% increase compared to 2014.

PwC analysis also puts the non-performing debt held by the asset management companies of China’s big state-owned banks at around 4.2 trillion yuan.

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