How Banks Are Shifting Nonperforming Assets From Disposal to Management (AI Translation)
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文｜财新周刊 武晓蒙
By Caixin Weekly Wu Xiaomeng
“国内经济缓慢复苏，商业银行净息差不断收窄，当前不仅要‘开源’，更要‘节流’，应不断提升不良资产处置效能，由程序化清收向特殊资产经营转变。”一位资深的银行不良资产业务人士近期对财新说。
"The domestic economy is recovering slowly, and commercial banks' net interest margins are continuously narrowing. Currently, it is crucial not only to 'increase income' but also to 'reduce expenses.' There should be a constant improvement in the efficiency of managing non-performing assets, shifting from procedural collection to special asset management," a seasoned banking professional specializing in non-performing assets recently told Caixin.
2024年11月22日，国家金融监督管理总局发布的最新数据显示，商业银行2024年三季度净息差1.53%，环比上季度下降1个基点（BP），较上年同期收窄20BP；整体不良贷款率1.56%，未明显波动，但关注类贷款占比自2023年下半年起已累计上升14BP至2.28%。
On November 22, 2024, the National Financial Regulatory Administration released the latest data showing that the net interest margin for commercial banks in the third quarter of 2024 was 1.53%. This marks a decline of 1 basis point (BP) from the previous quarter and a reduction of 20 BP compared to the same period last year. The overall non-performing loan ratio stood at 1.56%, showing no significant fluctuations. However, the portion of loans classified as under observation has increased cumulatively by 14 BP since the second half of 2023, now accounting for 2.28%.
具体而言，2024年9月末，商业银行不良贷款余额3.38万亿元，较上年末增加1513亿元；关注类贷款余额4.94万亿元，较上年末增加4718亿元。与正常类贷款相比，关注类贷款有更大可能发生劣变，潜在风险压力不容小觑。
Specifically, by the end of September 2024, the balance of non-performing loans at commercial banks reached 3.38 trillion yuan, an increase of 151.3 billion yuan from the end of the previous year. The balance of special-mention loans rose to 4.94 trillion yuan, marking an increase of 471.8 billion yuan from the end of the previous year. Compared with regular loans, special-mention loans have a higher likelihood of deterioration, posing significant potential risk pressures.
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- The net interest margin for commercial banks in Q3 2024 was 1.53%, while the non-performing loan ratio was 1.56%, with loans under observation increasing to 2.28%.
- Banks are restructuring departments to improve non-performing asset management, with initiatives like ICBC's and Huaxia Bank's departmental upgrades.
- Recent policies expand AMC's role in managing non-performing assets, and the market for transferring and managing restructured loans is growing rapidly, particularly in retail sectors.
The domestic economy is experiencing a slow recovery, with commercial banks facing continuously narrowing net interest margins. A seasoned banking professional emphasizes the importance of improving the management and disposal of non-performing assets (NPAs) by moving towards specialized asset management rather than sticking to procedural collections [para. 1]. Data from the National Financial Regulatory Administration indicates that commercial banks' net interest margin fell to 1.53% in Q3 2024, a decrease of 1 basis point from the previous quarter and 20 basis points year-on-year. The non-performing loan ratio remained stable at 1.56%. Notably, assets classified as "under observation" increased to 2.28%, reflecting heightened potential risks [para. 2][para. 3].
Industry sources reveal that banks are considering restructuring to better manage risk assets. For instance, ICBC plans to elevate its Risk Asset Management Center and Huaxia Bank aims to transform its Asset Preservation Department into a Special Asset Management Department to boost organizational performance [para. 4]. Historically, banks like Ping An Bank have taken the lead in specialized management of NPAs, but many still adhere to traditional asset management models focused predominantly on litigation-based recovery [para. 5][para. 6].
Given the challenging operating environment, banks are exploring new avenues for NPA management by strengthening internal teams and enhancing collaboration with external investors [para. 7]. For the first three quarters of 2024, data indicates a significant rise in the scale and transactions of NPAs, with large increases in loan listings and actual transactions [para. 8]. A new policy issued on November 15, 2024, seeks to expand and regulate financial asset management companies' activities, broadening the scope of NPA acquisitions to include more diverse asset forms [para. 9].
The market has seen particular focus on improving the management of restructured loans and non-performing personal loans. Research shows that banks are increasingly employing restructuring as a preventive measure to stabilize NPA ratios, yet these assets still demand further attention [para. 13][para. 15]. Notably, there's substantial growth in the bulk transfer market for non-performing personal loans, with transaction volumes rising markedly [para. 20][para. 22]. Despite these efforts, personal loan recovery rates remain challenging due to stricter regulatory conditions [para. 28].
The changes in asset management policies also impact how banks handle NPAs, encouraging them to employ a mix of traditional and innovative methods for recovery and asset transfer [para. 41][para. 44]. Banks are focusing on creating more efficient organizational structures and incentive mechanisms to manage NPAs effectively [para. 51][para. 55]. This includes rebranding Asset Preservation Departments to Special Asset Management Departments to emphasize performance and profit contribution [para. 60][para. 65].
Also, the Measures have expanded to include non-financial institution-related NPAs, thereby widening AMCs' scope. Notably, the regulation now recognizes debts, equities, and tangible NPAs derived from non-financial institutions, emphasizing authenticity and confirmation by courts or arbitration institutions [para. 78]. The move signals a strategic shift towards integrating advisory roles, aiming to fully leverage AMC resources for core NPA operations [para. 90][para. 94].
Overall, these developments underscore the evolving landscape of NPA management within Chinese banks, highlighting both the opportunities and challenges in navigating this complex sector. They may lead to more streamlined operations and improved financial resilience as banks adapt to a broader, more comprehensive asset management approach [para. 98].
- Industrial and Commercial Bank of China
工商银行 - Industrial and Commercial Bank of China (ICBC) plans to upgrade its Risk Asset Management Center from a secondary to a primary department, reflecting increased importance on managing and disposing of risk assets. The specific adjustment plan and new department name are yet to be determined. This is part of a broader industry trend towards enhancing organizational structures to optimize risk asset management and improve operational efficiency.
- Huaxia Bank
华夏银行 - Huaxia Bank plans to transform its Asset Preservation Department into the Special Asset Management Department, aiming to enhance organizational efficiency and optimize incentives. The bank recently held a Special Assets Promotion Conference, showcasing assets worth over 160 billion yuan to attract investors. This indicates a strategic shift towards more active management and disposal of non-performing assets, mirroring industry trends.
- Ping An Bank
平安银行 - Ping An Bank was an early explorer in specialized operations for non-performing assets, establishing its Special Assets Management Division in December 2016. This division, later renamed Special Assets Management Department, shifted from traditional bad loan recovery to special asset management, setting a precedent for other banks.胍繋
- China Construction Bank
建设银行 - China Construction Bank (CCB) has not heavily engaged in bulk transfers of individual non-performing loans (NPLs). It initially tried small-scale batch transfers in 2021 but hasn't expanded significantly since. However, recent data from the China Banking Asset Registration and Transfer Center indicates CCB has increased batch transfers, notably of individual business loans, reflecting a slight rise in its personal business loan NPL rate to 1.57% in the first half of 2024.
- Bank of Communications
交通银行 - The article mentions that Bank of Communications (Bocom) has an Asset Protection Department, like other major banks. However, it does not specify detailed actions or organizational changes regarding non-performing asset management similar to those highlighted for some other banks such as ICBC or Hua Xia Bank.
- China Merchants Bank
招商银行 - The article mentions that China Merchants Bank (CMB) has not significantly engaged in the non-performing personal loan bulk transfer market. CMB mainly uses asset-backed securities (ABS) for offloading non-performing loans. Despite being known as the "king of retail," CMB has not expanded its involvement in bulk transfer activities compared to other banks.
- Agricultural Bank of China
农业银行 - The Agricultural Bank of China has a Risk Asset Disposal Department, which is responsible for handling non-performing assets. It has not established a separate primary department like some other banks that have transformed their asset preservation departments into specialized asset management divisions to focus on optimizing asset disposal and improving profitability.
- China CITIC Bank
中信银行 - China CITIC Bank has established a Legal and Asset Preservation Department as part of its efforts to manage non-performing assets. This indicates a structured approach to handle asset risks, aligning with broader industry trends where banks are enhancing their focus on asset management and disposal strategies.
- Bank of China
中国银行 - The article mentions that Bank of China has not set up a primary level department specifically for non-performing asset management. This indicates that, unlike some other banks, Bank of China may still be integrating non-performing asset responsibilities within other primary departments.
- Postal Savings Bank of China
邮储银行 - The article mentions that Postal Savings Bank of China has not established a primary department dedicated to non-performing asset management, unlike some other banks that have restructured to emphasize special asset management.
- Bank of Beijing
北京银行 - The article does not specifically mention the Bank of Beijing. It references several banks in relation to non-performing asset management and structural changes, such as transforming departments into special asset management units and optimizing incentive mechanisms, but there are no specific details about the Bank of Beijing's activities or strategies in this context.
- Hengfeng Bank
恒丰银行 - Hengfeng Bank has adopted a different departmental naming approach by calling its dedicated unit the "Debt Management Department," distinguishing it from other banks that have renamed similar departments to "Special Asset Management Departments." This reflects its strategic approach to managing non-performing assets within the broader industry trend of focusing on special asset operations.
- China Great Wall Asset Management
长城资产 - China Great Wall Asset Management is actively involved in China's non-performing asset market. They have seen the non-performing loan packages increase significantly from 17.7 billion yuan in 2021 to 621.9 billion yuan in 2023. The firm monitors trends and adjusts its strategies in the competitive asset market, addressing issues like decreasing individual loan recovery capabilities due to tightened regulations.
- December 2016：
- Ping An Bank established its Special Asset Management Business Unit.
- July 10, 2024：
- Huaxia Bank and the Beijing Equity Exchange held the first special asset promotion fair of 2024.
- August 29, 2024：
- China Ping An Bank held its 2024 Special Assets Promotion Conference in Suzhou.
- By September 2024：
- The balance of non-performing loans at commercial banks reached 3.38 trillion yuan, and special-mention loans rose to 4.94 trillion yuan.
- November 15, 2024：
- The National Financial Regulatory Administration issued the 'Measures for the Management of Non-Performing Asset Business by Financial Asset Management Companies.'
- November 22, 2024：
- The National Financial Regulatory Administration released data showing that the net interest margin for commercial banks in the third quarter of 2024 was 1.53%.
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