A year after Ping An Bank Co., Ltd. set up its bad loan asset management unit with more than 400 staff in late 2016, the bank reported that it had recovered non-performing assets of RMB9.53 billion (US$1.5 billion) in 2017, up 81.62% compared with the year before.
Since 2017, some joint-stock Chinese commercial banks began exploring non-performing assets management by setting up a special asset management division. Chinese banks can only sell their non-performing loans (NPL) directly to asset management companies (AMC) established by the central and local governments, as the NPL primary market is strictly limited to licensed entities in China and only AMCs have such licenses. The secondary market of NPLs, however, has no such restrictions.
Ping An’s special asset management division is the most aggressive among such entities established by commercial banks. Of the loan principal recovered, RMB3.9 billion had been written off, and RMB5.3 billion had not been written off. Around 83% of the recoverable amount had been recovered in cash, and the rest had been recovered by debt repayment. Ping An Bank reported non-performing loan ratio of 1.7%, representing a 4 basis point decline compared with 2016, according to the bank’s security filings.
Ping An is trying to improve the recovery of bad debt by utilizing technology and leveraging its own network and resources. To deal with fraud and other challenges, Ping An’s bad-loan unit is connected to 15 internal departments including Ping An Puhui, a microloan platform, and 104 external platforms including China’s national asset management companies, equity and debt investors and insurance asset managements.
Ping An collects information including credit, tax, intellectual properties, customs information, court documents of debtors and creditors to provide a complete description of a customer. Its big-data platform helps Ping An to track more than thousands of information facets for assets worth more than RMB1 billion (US$157 million) during the first quarter of 2018.
For example, the Ping An debt recovery team found a piece of paper with a hotel header, which lead the team to track down the hotel’s owner. The hotel owner turned out to be the son of a debtor, leading ultimately for the bank to discover fraudulent property transfers that compromised the bank’s interests. The bank then threatened to sue the debtor, who eventually repaid all the debt.
Ping An is also being opportunistic and patient in its recovery. One of the bank’s bad loan was collateralized by a real estate project in Ningbo, Zhejiang province, in 2014 when the housing prices were declining significantly. The bank failed to find a buyer of the project after many attempts. When housing prices picked up in 2017, Ping An took the opportunity and sold the asset to a local real estate firm promptly.
"We received RMB600 million (US$94 million) loan payments after the project was sold. The company continues to pay down its debt and we expect to collect more than RMB800 million (US$125.6 million)," Sheng Zhipeng, general manager of the special asset management unit at Ping An Ningbo, told local media.
"If we had auctioned off the project in the traditional NPL disposal way, the project would have collected about RMB500 million. But by looking for the best buyers and matching the deal, we recovered RMB300 million more and achieved zero lost for interest payments," Sheng said.
At a more fundamental level, the bank motivate its staff by linking their compensation with their NPL recovery rate. Some of Ping An’s staff were able to quadruple their annual income from RMB40,000 in 2016 to RMB1 million in 2017, the bank told local media.