Shenzhen Opens First Local Asset Manager to Deal With Distressed Assets

(Shenzhen) — The southern city of Shenzhen inaugurated its first asset management company to help dispose of bad loans in response to the central government’s efforts to clear up the nation’s debt overhang.

The China Merchants Ping An Asset Management Co. opened for business Wednesday as the first local AMC set up in Shenzhen and the third one in Guangdong province.

Chinese banks have come under increased pressure related to bad loans as businesses struggle with slower economic growth and the government’s deleveraging campaign.

Asset management companies (AMCs), often called “bad banks,” are set up to receive distressed financial assets such as nonperforming loans from institutions and recover as much money as they can by selling or restructuring the assets or applying other workout methods.

China set up its first four central government-owned national AMCs — China Orient, Cinda, Huarong and Great Wall — in 1999 to take over bad assets from state banks after the Asian Financial Crisis. The banking regulator in 2013 gave a green light to local government-run AMCs in an effort to clear up bad assets at the local level. Now, more than 40 smaller regional AMCs backed by provincial and municipal authorities have been approved.

With registered capital of 3 billion yuan, Shenzhen’s China Merchants Ping An AMC was jointly established by state-owned investment conglomerate China Merchants Group, Ping An Insurance and the Shenzhen city government. China Merchants and Ping An hold a combined 90% stake in the new AMC.

Zhang Jian, chairman of China Merchants Ping An AMC and director of China Merchants’ financial division, said the new Shenzhen AMC will focus on bad loan disposal for banks in Guangdong and help corporate clients deal with risky assets.

China Merchants Ping An AMC arranged partnerships with several central government-owned enterprises and will participate in the debt-to-equity swap program of China Shipbuilding Industry Co., according to Zhang.

Zhang said the rich financial and business resources provided by major stakeholders will offer great support to China Merchants Ping An AMC’s business.

China Orient estimated in July that nonperforming loans (NPLs) in China’s banking system could reach 1.7 trillion yuan ($252 billion) by the end of this year, up from 1.51 trillion yuan as of the end of 2016. NPLs are expected to continue rising at least until 2019, China Orient said.

However, as new loans expand, NPLs as a ratio to the banking system’s entire loan portfolio is set to fall slightly to 1.7% by the end of 2017 from 1.74% a year earlier, China Orient predicted.

Contact reporter Han Wei (weihan@caixin.com)