To beef up financial strength of banks, China is reportedly considering permitting some commercial lenders to begin divesting soured personal loans to distressed asset managers.
People familiar with the development told Bloomberg that the process of banks selling soured loans may well start this month.
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To facilitate a hassle-free initiation of the trial programme, banks and state-run bad-loan managers have been urged to fast-track preparations, undisclosed sources told the publication.
Further details of the trial, which is subject to nod by the China Banking and Insurance Regulatory Commission, are not yet finalised.
The first of such sale could be carried out by Industrial & Commercial Bank of China, the report added.
According to an estimate by research firm Financial Regulation & Law, the move could see Chinese banks divesting up to CNY1 trillion ($155 billion) of non-performing personal loans.
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By GlobalDataBy the end of September 2020, China’s total amount of bad loans surged to a 17-year high, thereby further diminishing banks’ capital and ability to extend new credit.
To address this challenge, the People’s Bank of China (PBoC) last month injected CNY950bn ($145bn) of one-year cash into the banking system via a medium-term lending facility (MLF).
“The policy will benefit retail banks particularly. It offers a market-oriented option for banks to get rid of the risks and trim their size of bad loans,” Bloomberg quoted China Merchants Securities’ chief bank analyst Liao Zhiming as saying.
The new pilot programme is said to include six biggest state-owned commercial banks and 12 joint-stock lenders.
It also involves the country’s major distress asset managers and few local bad-debt management companies.
