(Bloomberg) – China plans to allow some commercial banks to start selling distressed retail loans to distressed wealth managers later this month, according to people familiar with the matter.
At a December meeting of the official Center for Transferring Loan Assets, banks and state-run bad loan managers were asked to speed up preparations to ensure a smooth start to the testing program in January, the people said, asking not to consider the matter being identified is private. The Industrial & Commercial Bank of China Ltd. could be the first seller, others said.
Details of the process are still ongoing and have yet to be approved by the China Banking and Insurance Regulatory Commission, the people said.
The move will boost the financial strength of Chinese banks by helping them offload up to 1 trillion yuan ($155 billion) worth of non-performing retail loans, according to an estimate by research firm Financial Regulation & Law. China’s total amount of non-performing loans rose to a 17-year high on Sept. 30 amid the pandemic, eroding banks’ capital and ability to make new loans to individuals and small businesses to revive the economy.
CBIRC did not immediately respond to requests for comment, while ICBC declined to comment.
China’s $45 trillion banking industry suffered its worst profit slump in more than a decade last year after being on the front lines to help millions of businesses hit by the pandemic. With the virus now contained in China and the economy recovering, lenders will be allowed to shift to more prudent lending growth and risk management.
Lenders have ramped up personal loans, including residential mortgages, unsecured consumer loans and credit card debt, in recent years to compete with fintech platforms like Ant Group Co., which have made it easier for consumers to borrow via their ubiquitous Alipay app. Risks have also increased as laggards and small banks aggressively compete for customers, often by lowering lending criteria.
Currently, banks often write off such loans when they default. They can also issue asset-backed securities backed by soured personal loans, although banks still have to be responsible for collection.
Total issuance of such securities last year was 28.1 billion yuan, with 75% of it tied to credit card loans and personal mortgage loans.
The new pilot program includes six largest state-owned commercial banks and 12 joint-stock banks, as well as the largest distress asset managers and some regional bad debt management firms, people with knowledge of the matter said last year.
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