Industry observers expect China’s joint-stock lenders to accelerate their establishment of debt-equity swap investment management subsidiaries in 2017.
According to China Securities News the commercial banks are looking to debt-equity subsidiaries are a means of improving asset quality assessments, with small and medium-sized lenders also eyeing them as a way of getting the drop on their rivals by expanding their service provisions.
Bank of Communications chief economist Lian Ping foresees steady growth in debt-equity swap operations this year, as joint-stock banks strive to implement more comprehensive business models.
“At present the debt-equity swap targets that we see are companies that have strong prospects but suffer from temporary difficulties,” said Lian. “In future banks will be fairly cautious about the conversion of bad debt into equity.
“From another perspective however, NPL pressure for the banking sector as a whole is better now than it was over the past two years.”
According to Zhang Ming, China Construction Bank debt-equity swap expert, the establishment of specialised investment management subsidiaries to engage in debt-equity swap operations by commercial banks will be of benefit to advancing a transition away from traditional business models and strengthening sustainable development.
He expects specialist debt-equity swap subsidiaries to prove more adept at playing a bridging role in both the direct and indirect financing market, because of their enhanced grasp and understanding of clients and ability to provide more comprehensive services, including capital market instruments.
Industry observers expect industries with onerous asset to debt ratios to engage in preferential debt-swap conversion, in particular the coal, energy and machinery sectors.