Banks Wrestle With Growing Demand for Cross-Border Debt Recovery (AI Translation)

【周刊提前读】银行跨境追债需求渐升 如何应对高昂成本与不确定性？

The report discusses the increasing challenges facing Chinese financial institutions in the global recovery of bad debts, as high-profile cases illustrate the phenomenon of “wealthy monks in poor temples”—where companies default on financing and are stripped of assets, yet the actual controllers live luxuriously overseas, leaving domestic creditors with little recourse.[para. 1] The trend of debtors escaping abroad and hiding assets internationally has driven a growing interest in cross-border asset recovery, but the practical implementation remains difficult.[para. 2] The 2025 China Financial Debt Global Recovery Annual Report systematically examines the necessity and feasibility of global pursuit of assets post-debtor flight and reviews the global enforceability of Chinese court judgments and arbitration awards.[para. 3] The report was co-published by Huatian Law Firm, Omni Bridgeway, and Yudu International, the latter two providing international asset recovery funding and services.[para. 4]

While cross-border asset recovery is increasingly seen as a critical option for financial institutions under pressure from rising non-performing assets, many creditors are either unaware of this pathway or underestimate its value, limiting their ability to protect their interests.[para. 5] Among commercial banks, asset quality pressures have led to intensified recovery and disposal efforts. In 2024, Chinese banks disposed of a record 3.8 trillion yuan in non-performing assets, up notably from previous years, and bad loan transfer activity increased sharply, with over 280 billion yuan in assets listed for transfer—a year-on-year rise of 80.2%.[para. 6] The deterioration is partly due to property sector turmoil since 2020, which affects both on and off-balance sheet exposure.[para. 7]

Traditional recovery tactics often fail when collateral is insufficient or assets are depleted domestically, prompting the need for overseas asset pursuit, especially as debtors increasingly relocate assets abroad via complex structures.[para. 8] Despite this, banks often hesitate to pursue cross-border claims due to high upfront costs, legal unfamiliarity, and uncertainty about success, sometimes opting for rapid disposal or write-off instead.[para. 9] Nevertheless, Chinese court judgments are now enforceable in 47 countries and regions, while Chinese arbitration awards benefit from nearly universal acceptance under the New York Convention, valid in 170 countries—covering most destinations favored by Chinese high-net-worth individuals.[para. 10] However, practical obstacles such as differing procedures, difficulties in serving legal documents abroad, and protecting the debtor’s rights can result in foreign courts refusing to recognize Chinese decisions.[para. 11]

Another key barrier is the high cost of global debt pursuit. Complex cross-border cases involve high professional and legal service fees, with total costs sometimes running into millions of US dollars.[para. 12] International funding providers like Omni Bridgeway have begun offering solutions that assume financial and time risk in exchange for a significant share of recoveries, although it remains to be seen if this model is acceptable to Chinese banks.[para. 13] State-owned banks are generally more cautious due to lengthy decision chains, risk aversion, prolonged procedures, and concern about the optics of sharing recoveries with foreign partners, while small and mid-sized institutions are more willing to experiment given the outsized impact a single recovery can have on their balance sheets.[para. 14] Internal coordination among departments and approval variability also influence uptake, and the lengthy recovery timeline diminishes the appeal.[para. 15]

Beyond commercial factors, there’s a competitive risk—other creditors may stake claims and dilute returns after significant recovery investments.[para. 16] The “first come, first served” rule applies across borders, so delays weaken recovery chances as assets can be dissipated through consumption, failed investments, or active sales, especially amidst growing economic uncertainty.[para. 17] Lastly, statutes of limitation differ across jurisdictions (e.g., 10 years in California, 6 years in Singapore, 2 or 6 years in Hong Kong), so timely action is crucial lest creditors lose their legal right to pursue overseas enforcement.[para. 18]■[para. 19]

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