Chinese Banks Seeking to Recover Their Bad Debts

Major Chinese banks want to manage their own bad debts, attracted by the outsize profits being earned by recovery firms, in a sign of confidence that investments in internal risk assessment teams are set to pay off.

If they are right, it may mark the end of a buyer’s market for a distressed debt pile that has topped $100 billion, benefiting bank shareholders at the expense of asset-management companies such as China Cinda Asset Management Co (1359.HK).

But the phenomenon also poses a challenge for regulators as they push banks to lend more to stimulate growth; in retaining non-performing loans (NPLs) on their books in search of profit, the banks effectively limit their ability to make fresh loans.

“There are so many NPLs in China, there’s a lot of room for information asymmetry, where assets get written off that actually have some value,” said Benjamin Fanger, founder of Shoreline Capital, a Guangdong-based firm specializing in distressed debt investment in China since 2004.

It is a lucrative business at the moment. State-owned Cinda reported a 26 percent rise in net profit to 9.1 billion yuan ($1.5 billion) last year and China Huarong Asset Management’s net profit jumped 44 percent to 10.1 billion yuan.

via Reuters

Content is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Business Information & Services, Inc. or any of its affiliates, subsidiaries, officers or directors. If you would like to reproduce or redistribute any of the content found on MarketPulse, an award winning forex, commodities and global indices analysis and news site service produced by OANDA Business Information & Services, Inc., please access the RSS feed or contact us at info@marketpulse.com. Visit https://www.marketpulse.com/ to find out more about the beat of the global markets. © 2023 OANDA Business Information & Services Inc.