Caixin
Mar 05, 2021 05:58 AM
FINANCE

Chinese Banks Sell First Batch of Soured Personal Loans

Industrial & Commercial Bank of China Ltd. sold 10 million yuan of personal credit card bad loans to GIG Asset Management Co. Ltd. at a discount of as much as 71%.
Industrial & Commercial Bank of China Ltd. sold 10 million yuan of personal credit card bad loans to GIG Asset Management Co. Ltd. at a discount of as much as 71%.

Industrial & Commercial Bank of China Ltd. (ICBC, 601398.SH) and Ping An Bank Co. Ltd. (000001.SZ) became the first sellers of soured personal loans under a pilot program launched in January.

China’s official credit assets transfer center auctioned off the first batch of 657 million yuan ($101 million) of bad personal loans held by the two banks. A total of 16 national and local distressed asset managers participated. Winning bidders offered 14% to 45% of the combined credit balances.

The auction was a trial of an approach to getting bad personal loans off banks’ books. The total of credit card balances overdue for six months reached 90.66 billion yuan ($14 billion) at the end of September 2020, an increase of 22% from the end of 2019, according to data from the People’s Bank of China.

GIG Asset Management Co. Ltd. in southern China’s Guangxi province won the bidding for ICBC’s two personal credit card bad loan packages. One bundle of 7.73 million yuan of loan balances and interest owed by 53 individual borrowers was sold for 2.21 million yuan, or about 29% of the combined balance. The other package was sold for 45% of the balance.

As one of the first credit card distressed asset packages transferred, the transaction is more meaningful than the actual terms, GIG Asset general manager Ma Ruofei told Caixin. GIG will try to collect on the loans by contacting borrowers, working out debt restructuring plans or filing litigation, Ma said. At present, the company has no requirements on the return rate and disposal cycle of the personal loans, he said.

Compared with the traditional bad loans GIG handles, the personal bad loan packages were small, Ma said. The legal system involving credit card assets is different from that for business bad loans. The company plans to go through the process of personal bad loan disposal, he said.

Goho Asset Management Co. Ltd in central China’s Anhui province bought ICBC’s bad consumer loan package of 26.38 million yuan of loan balances and interest owed by 41 individual borrowers, according to the assets transfer center. The loan package was sold for 3.6 million yuan, or 14% of the total loan balance.

China Orient Asset Management Co. Ltd. bought Ping An Bank’s soured personal business loan package, which includes 111 loans totaling 17.73 million yuan owed by 20 borrowers. The package was sold for 2.89 million yuan, or 16% of the loan balance.

Bidders were cautious because asset management companies don’t have much experience in the pricing and disposal of bad personal loans, industry participants said.

The asset managers are not allowed to transfer the bad personal loans to others and can only try to collect the debts or dispose of the loans through debt restructuring. They are forbidden from collecting nonperforming personal loans through violence or engaging debt collectors with a record of violent collection, mafia-related crimes or other illegal activities.

Some industry participants said the current transfer policy does not truly resolve personal bad loans problems. Neither commercial banks nor asset managers are capable of disposing of these bad loans, especially those without collateral, they said.

Contact reporter Denise Jia (huijuanjia@caixin.com) and editor Bob Simison (bobsimison@caixin.com).

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