Foreigners 'key to sale of loans'

PUBLISHED : Thursday, 30 June, 2005, 12:00am
UPDATED : Thursday, 30 June, 2005, 12:00am

Official seeks bigger role for outside bidders after failed NPL auction by Cinda

The mainland has done an inadequate job at involving foreign investors in the pressing task of resolving the massive stock of non-performing loans (NPL) in the country's banking system, according to a senior regulator.

Yesterday's statement by Yan Qingmin, director-general of banking supervision department of the China Banking Regulatory Commission (CBRC), came in the wake of a controversial loan auction on Monday that foreign investors boycotted, claiming it favoured state-owned asset managers.

'The key to insufficient foreign participation in the NPL market lies mainly in the bidding process,' Mr Yan told a problem loan resolution international seminar in Beijing. 'We hope foreign investors will be able to participate in the quasi-primary market of bank NPLs ... where they can help achieve more rational pricing of assets.'

On Monday, China Cinda Asset Management failed to sell 6.5 billion yuan of Tianjin loan receivables acquired from Bank of China (BOC) last year after the international auction drew only two low bids from two fellow state-owned financial asset management companies (AMC).

Foreign investors stood on the sidelines after Cinda refused to reserve some of the three pools of assets for bidding by non-AMC domestic and international investors.

The four AMCs created in 1999 to tackle bad loans from state banks enjoy tax exemptions, state financing and reduced legal costs, giving them a strong competitive advantage over other investors.

The foreign investors' protests over the AMCs' participation is believed to have triggered the auction's 12-day delay from June 15.

Foreign investors had previously complained about the thin flow of deals open to international buyers in what was billed as one of the world's largest NPL markets.

Even though the four AMCs have disposed of about 700 billion yuan of the 1.39 trillion yuan of problem loans transferred to their books in 1999, less than US$7 billion was believed to have gone to foreign investors, said Li Zhaofeng, vice-chairman of Zhongjian Fengde Holdings, a Morgan Stanley partner in the NPL market.

'It's encouraging to hear a senior representative from CBRC acknowledge what we in the industry have been feeling for some time,' a foreign NPL expert said. 'We need more foreign participation to make this a viable market.'

The four AMCs this week also came under renewed criticism after a National Audit Office (NAO) report to the national legislature revealed 71.5 billion yuan of actual and suspected irregularities in loan transfer, disposal and accounting uncovered during an investigation last year.

In response, the Hong Kong-quoted share price of Silver Grant International Industries, controlled by Cinda but invested by Citigroup and JP Morgan, dived 38.97 per cent yesterday.

Coming to the defence of the AMCs, Mr Yan said the NAO probe was aimed chiefly to unearth the big state banks' wrongdoings.

The Ministry of Finance and CBRC are expected to issue guidelines for the AMCs to improve their due diligence work in problem loan disposal. That will be followed by the introduction of rules for more transparent information disclosure on NPL disposals, perhaps by the end of the year.

At a time when the four AMCs are forced to compete for business, the government will soon remove the arrangement under which the president of each of the Big Four state banks doubles as party boss of the AMC that is responsible for resolving the bank's NPLs, according to Mr Yan.

'The AMCs should be allowed to operate independently,' he added.