Bad loans to grow as disposal becomes harder, says chairman of China’s biggest ‘bad bank’

The bad loan market is expanding but Lai noted that the quality of non-performing loans (NPLs) is deteriorating, making it harder to earn a profit by disposing of them. As a result, his company is actively developing other financial services like securities and futures, financial leasing and the trust business.

China Huarong is also in talks to buy an overseas US dollar denominated insurer. An ideal target would have 100 billion yuan (HK$116 billion) to 200 billion yuan worth of premiums under management, Lai said.

“The downward pressure of the macro economy is increasing for the second half of the year and non-performing loans continue to grow bigger. I do not think the momentum will reverse in the short term,” he said.

“Although the market for bad assets is growing, some of the assets would not reach my standard for selection,” Lai said, adding that the average time to dispose of a bad asset package is now from one to three years, more than half a year longer than in 2005.

Official numbers show the NPL ratio among China’s commercial banks has been on the rise for 19 consecutive quarters up to June. On Monday the official Securities Journal reported a new debt-to-swap programme, where debt that banks hold in underperforming companies would be traded for stock holdings, would be introduced as early as this month.