China's Bad-debt Disposal Speeds Up

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Last updated at: (Beijing Time) Friday, November 01, 2002

China's Bad-debt Disposal Speeds Up

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China's asset management companies (AMCs) said they will accelerate the pace of disposal of the 1.4 trillion yuan (US$169 billion) in non-performing loans (NPLs) transferred to them from State-owned banks.

"We must take quick action to dispose of the assets before it is too late," said Wang Haijun, executive director of the Investment Banking Department of the China Cinda Asset Management Corporation, one of the four AMCs established in 1999 in China to take over and dispose of the Big Four banks' NPLs.

Wang was referring to the assets that may devalue quickly if not disposed of in time, including early-constructed real estate and assets that are less marketable if held for too long.

Foreign banks are also able to participate in the programme on an equal basis with domestic investors. Several have already submitted their proposals, said Wang while attending a financial conference yesterday in Beijing.

But the process still requires better co-ordination between different departments and more policy support for innovation to make further progress, he said.

To dispose of the NPLs, the AMCs conducted a series of debt-to-equity swaps with 580 State-owned enterprises (SOEs) during 1999 and 2000. The swaps transformed 40 billion yuan (US$4.8 billion) of bad debt into equity held by the AMCs in these enterprises.

In addition, through public auction, selling and negotiation, another 232.3 billion yuan (US$28 billion) worth of such NPLs were disposed of by the end of September, which helped the AMCs recover 52.5 billion yuan (US$6.3 billion) in cash.

Yet the present scheme to solve the NPL problem is still too limited and new measures should be tried for better efficiency, said Wang.

He told reporters that several AMCs, including Cinda, have applied to the central bank to be allowed to pack up the better quality assets for securitization.

In enterprises that report good cash flow, some of the indebted assets can be pledged to be issued as bonds, like in the transportation, water and power industries. It would help the indebted enterprises get more capital and relieve pressure on the banks and AMCs.

Yet the most important thing now is to prevent new NPLs in the State-owned banks, experts said.

The Big Four banks - Bank of China, Industrial and Commercial Bank of China, China Construction Bank and Agricultural Bank of China - though their networks are much bigger, are weaker in management, growth and profitability than listed banks.

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