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China plans to let banks sell soured personal loans to ease risks

Beijing

CHINA plans to allow some commercial banks to start selling soured personal loans to distressed asset managers as soon as this month, according to people familiar with the matter.

At a December meeting by the official credit assets transfer centre, banks and state-run bad loan managers were asked to accelerate preparations to ensure a smooth start of the trial programme in January, said the people, asking not to be identified as the matter is private. Industrial & Commercial Bank of China could be the first seller, other people said.

Details of the trial are not yet finalised and still subject to approval by the China Banking and Insurance Regulatory Commission (CBIRC), said the people.

The move will beef up financial strength at Chinese banks by helping them offload as much as one trillion yuan (S$205 billion) of non-performing personal loans, according to an estimate by research firm Financial Regulation & Law. China's total amount of bad loans has climbed to a 17-year high as of Sept 30 amid the pandemic, eroding banks' capital and ability to extend new credit to individuals and smaller businesses to revive the economy.

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"The policy will benefit retail banks particularly," said Liao Zhi-ming, chief bank analyst at China Merchants Securities. "It offers a market-oriented option for banks to get rid of the risks and trim their size of bad loans."

The CBIRC didn't immediately respond to requests seeking comment, while ICBC declined to comment.

The new pilot programme includes six biggest state-owned commercial banks and 12 joint-stock lenders, as well as the largest distress asset managers and some regional bad debt management firms, people familiar with the matter said last year.

China's US$45 trillion banking industry suffered its worst profit slump in more than a decade last year after being put on the frontline in helping millions of struggling businesses hurt by the pandemic. With the virus now contained in China and the economy staging a rebound, lenders are being allowed to shift to more prudent loan growth and risk management.

Lenders have been ramping up personal loans, including housing mortgages, unsecured consumer loans, and credit card debt, over the past few years to rival fintech platforms such as Ant Group, which has made it easier for consumers to borrow via its ubiquitous Alipay app. Risks have built up too as latecomers and small banks compete aggressively for customers, often by lowering lending criteria.

Currently, banks often write off such loans when they have gone bad. They can also issue asset-backed securities backed by soured personal loans, though banks still need to be responsible for debt collecting.

Total issuance of such securities amounted to 28.1 billion yuan last year, with 75 per cent of those tied to credit card borrowings and personal mortgage loans. BLOOMBERG

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