NewNPLs overwhelm Chinese lenders but state ‘bad banks’ look the other way
“The level of NPLs was really unexpected,” said Wilson Pang, a partner at KPMG in Hong Kong. “Banks don’t have a really good plan for how much they need to dispose and what the time table for that is”
With so much bad debt on their hands, mainland banks might want to find more common ground this year with the state companies that buy their bad assets. But, despite a large volume of non-performing loan transactions last year, the two sides will likely have trouble seeing eye-to-eye on deals.
In 2014, more than 20 banks sold at least 120 billion yuan in bad debt to state-run asset management companies (AMCs), double the transactions in 2013, according to figures from KPMG. Some have put the value of the transactions at above 200 billion yuan.
But the market has become more challenging for both the banks and the AMCs. Banks were unprepared for the high volume of bad loans this year, experts said. They are also increasingly reluctant to sell off bad assets at low prices.
AMCs, on the other hand, have a spectrum of easier, higher-return businesses they can snatch up – ones that don’t include sticky restructuring or liquidation. The government, which a decade ago mandated the transfer of about 1.4 trillion yuan from banks to asset managers, has taken a backseat in the business.
That is to say, the distressed asset market in China has become, if anything, more market-like.
Chinese banks saw a considerable uptick in non-performing loans in 2014. In the first 11 months of the year, the official sector-wide NPL ratio hit 1.31 per cent, up from 1 per cent in at the close of 2013. That figure is likely far lower than the real rate. BNP Paribas put the implied NPL ratio at 7.1 per cent in 2014.