China’s banking regulator has launched new measures that place greater restrictions on the acquisition of non-performing assets by local asset management firms.
The China Banking and Insurance Regulatory Commission (CBIRC) recently issued the “Notice Concerning Strengthening Monitoring and Management Work for Local Asset Management Companies” (关于加强地方资产管理公司监督管理工作的通知), which calls for “fully employing the active role of local asset management companies in invigorating local non-performing assets and the prevention and dissolution of regional financial risk.”
The Notice prohibits the “blind establishment of local asset management companies,” while stressing that local asset management companies are not permitted to help financial companies to produce false reports for the purpose of concealing their non-performing assets.
According to the Notice the purchase of non-performing assets by local asset management companies should “be in consonance with real and effective conditions, use assessment and valuation procedures to achieve fair market pricing, and implement real and complete transfer of assets and risk.”
“Outside of transfer agreements and other formal legal documentation, (asset management companies) are not permitted to execute or conclude agreements that change transaction structures, risk-bearing entities or related rights transfer processes that impact the real and complete transfer of assets and risks.
Asset management companies are further prohibited from:
- Establishing any explicit or implicit repurchase provisions;
- Providing financing to enterprises or projects for nominal non-performing asset purchases;
- Purchasing any creditor’s rights assets without actual corresponding assets or transactions underlying them;
- Transferring illegal interests to shareholders or affiliates;
- Using violence or other illegal methods to perform collection;
- Purchasing assets that the State Council has approved for inclusion in the national enterprise policy closure and bankruptcy plan;
- Purchasing assets that involve national security or sensitive information, such as national defence assets.
CBIRC requires that “local financial regulatory authorities strictly standardise procedures and effectively control the market entry and exit points, while encouraging “local governments and related departments to research and release support policies in the areas of taxation, asset disposal, lending support, industry development, the judiciary and human talent introduction.”