Special Situations

Prices Of China’s Non-Performing Loans Drop As Much As 10% Due To Rising Supply

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Due to increasing supply of Chinese banks’ non-performing loans, prices of these assets have decreased as much as 10% in the first half of this year.

Trading volume of non-performing assets have increased in the first half of this year compared to last year, but prices have dropped compared with the fourth quarter last year, Peng Langhui, Cinda Asset Management’s financial institutional manager, said at a banking press conference.

He said all banks, including state-owned banks, joint-stock banks and local banks, have all seen their NPLs increase.

Wholesale retailers, manufacturers and real estate developers are the top industries that generate these non-performing loans, with industry NPL ratio of 9.75%, 4.8% and 2.72% respectively, according to Peng.

"Since the last quarter of 2017, asset management firms had been very active in acquiring non-performing assets. Some off-the-balance sheet assets were quoted more than 90 times and bidding for these assets were more fierce than what the banks expected," said Xie Jia, general manager at Industrial and Commercial Bank of China’s NPL disposal center.

"But starting from the first quarter this year, the market went downward. An asset management firm that purchased 48% of our non-performing assets only bought less than 10% this year," he continued.

One of the reason for the sinking prices is the increasing supply of non-performing assets. By the end of 2017, Chinese banks had a total of RMB5.12 trillion of non-performing loans and special mention loans. Special mention loan mean the borrower has ability to repay the loan currently but may be affected by some unfavorable factors.

By the end of this March, the number has increased to RMB5.24 trillion, representing a 2.3% growth, according to China Banking and Insurance Regulatory Commission.

Market analysts say as China moves to decrease financial risks, companies can no longer move their non-performing assets off their balance sheets or shift them to their subsidiaries, financial institutions including trusts, insurers, funds and securities firms.

Liu Bo, a general manager at China Orient Asset Management, said starting from this year, market participants of non-performing assets have been more rational, with more due diligence being conducted and more reasonable prices being quoted.

"The chaotic competition and fighting over high-valuation assets are gone. A more healthy market with orderly operation it taking shape," Liu said.

 


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