More Chinese banks set up own bad-loan asset management companies

More Chinese banks are setting up their own bad-loan asset management companies to facilitate the country’s debt for equity swap scheme that aims to reduce China’s corporate leverage.

China Construction Bank, the second largest lender in the country, is planning to apply for a license to set up its own bad-loan asset management company (AMC) to focus on debt for equity swap initiatives, Zhang Minghe, the bank’s executive for the debt for equity scheme, said earlier this week.

Compared with other asset management companies CCB currently owns, including CCB International, CCB Trust Co and CCB Principal Capital Management Co, the new AMC will focus on debt for equity swaps, said Zhang.

“We want to have independent implementing agencies for debt for equity schemes and our peers also have the same idea,” he said.

China Minsheng Banking Corp is also reported to have plans for a bad-loan AMC to offload some of its US$5.7 billion of bad loans.

Minsheng Bank is seeking guidance from the banking regulator on establishing such an entity, including details on its potential business scope and ownership structure, according to media reports.

The two banks are endeavouring to enter a bad-asset management market that has been dominated by four big AMCs – China Huarong, Cinda, Orient and Great Wall – that the government established in 1999 to help clean up bad loans in the banking system. With the economic slowdown, China’s banks once again find themselves under pressure from mounting bad debts.