Chinese Banks Accelerate Disposal of Non-performing Assets in Wake of COVID-19

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Chinese commercial banks have stepped up their efforts to dispose of their non-performing assets (NPA) in the wake of the COVID-19 outbreak at the behest of central government regulators.

Multiple sources said to Cailianshe that starting from the second quarter Chinese commercial banks have been accelerating measures to deal with NPA’s.

“As a result of the impact of the pandemic, this year the overall trend has been for a rise in the non-performing loans,” said one source from a commercial bank on 27 July.

“We have observed that from the second quarter, and especially since June, many banks have expanded the vigour of NPA disposal, which is of benefit on the one hand to reducing NPA pressure on banks, and on the other hand expanding the vigour of support for private and micro and small-enterprises by shifting them off the asset-side.”

As a result of the pandemic Chinese financial regulators have unveiled related policies, such as deferring payments of principal and interest on loans, and refraining from downgrading their risk category for reasons associated with COVID-19.

“Consequently in the short-term there will not be a large-scale rise in NPL’s, and commercial banks will engage in stage-based disposal in order to deal with pressure in March of next year,” said the source.

Asset management companies (AMC) have also been strengthening their traditional disposal methods, while also actively employing innovative “online + offline” methods.

“Under the impact of the pandemic and regulatory requirements, the demand from commercial banks for disposal of NPA’s has increased, and in the first half of the year most banks have expanded the rate of their out-packaging of NPA’s,” said a source from one of China’s big four AMC’s.

“Additionally, these past two years AMC’s have focused on their primary business, and expanded their ability to purchase NPA’s. Overall, market prices are falling, but not by a great extent.”

In early July the China Banking and Insurance Regulatory Commission (CBIRC)  announced tri­als for the bun­dle trans­fer of per­sonal NPL’s, which sources said marked a ma­jor break­through when it comes to chan­nels for the dis­posal of bad debt in China, as well as presaged a further ac­cel­er­a­tion in dis­posal ef­forts. 

CBIRC also stated at its 2020 mid-year work meeting that it would “plan in advance to deal with a large-scale rise on banking sector NPA’s and strengthen risk resistance capability.”

Related stories

CBIRC Hopes to Ac­cel­er­ate Dis­posal of Bad As­sets with Bun­dle Trans­fers of Per­sonal NPL’s

CBIRC Height­ens Scrutiny of Non-per­form­ing As­set Pur­chases by Lo­cal AM­C’s

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