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Our reporter Yang Jingxin reports from Beijing

As banks increase credit, the pressure to remove non-performing assets from their balance sheets is also increasing. Since banks have relatively few means of disposing of non-performing assets, the transfer of large quantities of non-performing assets has become the main way for financial institutions to resolve risks. At the same time, the ultra-low discounts for the transfer of some non-performing asset packages are very attractive to local AMCs (asset management companies), and market transactions are booming.

China Business News reporter learned that at a time when online batch loan models are prevalent, banks have high costs for collecting small and scattered bad debts, and there are more and more restrictions on outsourcing collection. Many banks are more willing to "get rid of the burden" directly through debt transfer. Then, due to the large discount of some asset packages and the lucrative profits of non-performing asset disposal, some local AMCs have flooded into the market and made a lot of money through technology collection and batch litigation.

Increase bad debt disposal and control risks

On August 9, the State Financial Supervision and Administration Bureau released the main regulatory indicators of the banking and insurance industries in the second quarter. As of the end of the reporting period,Commercial BanksThe balance of normal loans was 21.08 trillion yuan, and the balance of non-performing loans was 3.3 trillion yuan, a decrease of 27.2 billion yuan from the end of the previous quarter; the non-performing loan ratio of commercial banks was 1.56%, a decrease of 0.03 percentage points from the end of the previous quarter.

As of the end of 2023, the balance of normal commercial bank loans was 19.93 trillion yuan, the balance of non-performing loans was 3.2 trillion yuan, and the non-performing loan ratio was 1.59%. In other words, in the first half of this year, the bank's credit supply increased by 11.5 trillion yuan, while non-performing loans increased by 100 billion yuan.

At the same time, data disclosed by regulators show that the scale of non-performing assets disposed of by the banking industry will exceed 3 trillion yuan each year between 2021 and 2023. Combined with the current accelerated reform and resolution process of small and medium-sized financial institutions, the standardization of risk classification of commercial banks' financial assets, and the gradual elimination of risks in real estate and related industries, many institutions predict that the scale of non-performing asset disposal by financial institutions will increase in 2024.

On January 30 this year, the State Financial Supervision and Administration Bureau held a 2024 work meeting to "actively and prudently prevent and control risks in key areas and strengthenCredit RiskManagement, and intensify the disposal of non-performing assets" was listed as one of the eight key tasks and objectives.

Since the end of last year, the non-performing rates of bank consumer loans and business loans have generally shown an upward trend, and the pressure to dispose of personal loan non-performing assets has gradually increased.

"Currently, small and medium-sized banks are under great pressure to remove non-performing assets from their balance sheets," a senior executive of a local bank told reporters.

The senior executive of the local bank said that due to the pressure of various assessments, small and medium-sized banks are in a difficult position in dealing with non-performing assets. "Some loans may be recovered sometimes, but in order to revitalize assets and reduce non-performing assets, banks can only sell the debts at a low price."

"In terms of corporate loans, the risks in some industries have increased, and the banks' non-performing loan rates in this area will also rise. Most non-performing loans are secured, and banks will dispose of them by auctioning the collateral or directly transferring the debt. The determining factor for the transfer is price," said the above-mentioned local bank executive.

He told reporters that most banks have conventional collection methods. Since most borrowers do not have subjective malice to evade bank debts, the use of conventional collection methods can maximize the benefits of collection and disposal.

"However, the disadvantage of conventional collection and disposal is that the effect of the disposal depends on the borrower's willingness and ability to repay. For some companies that have fallen into debt crisis or bankruptcy, banks also hope to recover the principal as soon as possible through the transfer of non-performing assets." The above-mentioned local bank executive said, "Corporate debt litigation usually takes a long time, especially when some companies have many creditors, asset disposal is more complicated. Asset management companies are more professional in handling such debts and have more means."

Regarding the disposal of personal loan NPL assets, the above-mentioned local bank executives believe that it is difficult for banks to dispose of them. "An important way for banks to deal with bad debts is to collect them, but there are some compliance issues involved. In the past, most banks would use a combination of internal and outsourced collection methods for personal loan NPLs. Now, some banks are building collection teams, and some banks have chosen to directly transfer the NPLs."

It is understood that the non-performing loans of individual banks are mainly concentrated in consumer loans, credit cards, business loans and other businesses. Many of these businesses are credit loans and have no collateral assets. At the same time, the above loan businesses are mostly placed online, which also increases the difficulty of bank collection. "When approving the loan, there were no problems with the process and risk control. The borrowers had jobs and specific addresses and met the requirements. However, some borrowers could not be contacted after the debt defaulted, and some even changed jobs, changed addresses, and disappeared. It is very difficult to collect such online loans."

The cost of collecting small credit loans is relatively high, and the effect may not be ideal in the end. The above-mentioned local bank executive said that for a credit card bad debt of 50,000 to 80,000 yuan, the bank arranged for personnel to sue the court, but after the judgment, the debt may not be enforced because the borrower has no assets. "In terms of the disposal of non-performing assets, it is important for banks to prevent malicious debt evasion and malicious loan fraud. For some borrowers who are unable to repay, banks are willing to transfer and dispose of non-performing assets."

Recently, the Banking Credit Asset Registration and Transfer Center (hereinafter referred to as the "Yinda Center") released the "Statistical Data on the Pilot Business of Non-Performing Loan Transfers in the Second Quarter of 2024". The data showed that the scale of the pilot business of non-performing loan transfers in the second quarter of 2024 was 46.49 billion yuan, and the number of projects was 205, which was a significant increase from the scale of 16.74 billion yuan and 139 projects in the same period of 2023. In the second quarter of this year, 157 non-performing loan transfer pilot businesses were completed, with a scale of 35.61 billion yuan, which was also a significant increase from the number of 122 transactions and 14.2 billion yuan in the same period of 2023.

At the same time, with the obvious increase in market supply, the discount rate and principal recovery rate of non-performing asset transfers in the second quarter of 2024 were lower than those in the same period of 2023. Data show that the average discount rate for batch personal business in the second quarter of 2024 was 4.1%, and the average principal recovery rate for batch personal business was 9%; the average discount rate for single-household corporate business was 41.7%, and the average principal recovery rate for single-household corporate business was 50%. The above four indicators in the same period of 2023 were 7%, 12.7%, 52.8% and 72.5% respectively.

In addition, the China Banking and Insurance Regulatory Commission also disclosed the structure of market participants. Among the transferors of NPLs, state-owned banks, joint-stock banks, city commercial banks, rural small and medium-sized banks, consumer finance companies and financial leasing companies accounted for 11.7%, 68.2%, 4.9%, 1.7%, 13% and 0.5% respectively. The transferees of NPLs were mainly local asset management companies, accounting for 93.5% of the business volume.

Statistics show that in the first seven months of this year,China Merchants Bank（600036.SH）、China Everbright Bank（601818.SH）、China Minsheng Bank（600016.SH）、Shanghai Pudong Development Bank（600000.SH）、Huaxia Bank（600015.SH）、Bank of Communications（601328.SH）、Bank of Nanjing(601009.SH), Beijing Rural Commercial Bank, Guangdong Shunde Rural Commercial Bank and many other banks have listed credit card overdraft asset transfer projects at the China Banking and Insurance Regulatory Commission. The above 9 banks have listed a total of 29 credit card asset transfer projects, involving a total outstanding principal and interest of 21.921 billion yuan.

A person from a joint-stock bank told reporters that in the disposal of non-performing assets, the valuation of the asset package has a great relationship with the collateral situation. "Credit loans have relatively few constraints, while mortgage loans directly dispose of assets, and the key is to look at the value of the collateral."

“Digging for Gold” in Disposal of Non-Performing Assets

It is not uncommon to see packages of non-performing assets worth tens of billions of yuan being "fired off" at prices less than 10% off the original price in the market, which has also attracted a number of local AMCs to enter the market.

The above-mentioned joint-stock bank personnel revealed to the reporter that due to the different customer groups, the discounts for the transfer of non-performing assets of consumer finance companies will be larger than those of banks under the same circumstances. The valuation of the asset package is related to the length of time the loan is overdue and the age of the loan customer group. "The discount for the transfer of non-performing assets of individual loans of banks is usually between 5% and 10%. These loans have been collected by the bank in regular ways without success, and some loans may have been prosecuted."

The person from the joint-stock bank believes that the transfer of non-performing corporate loans is relatively routine, that is, the disposal of collateral. In contrast, the transfer of non-performing personal loan assets is in the spotlight, with both supply and demand being relatively large, and many investment institutions and capital are also optimistic about this field.

So, how do local AMCs deal with the acquired NPLs? How much profit do they make? In the first quarter of this year, the only listed company in the domestic securities market whose main business is NPL management wasHyde shares(000567.SZ) released its 2023 annual report and the first quarter report of 2024. The report shows that in 2023, Hyde shares achieved operating income of 1.23 billion yuan, a year-on-year increase of 15.69%, and realized a net profit attributable to the parent of 880 million yuan, a year-on-year increase of 25.68%. In the first quarter of 2024, Hyde shares achieved revenue of 345 million yuan, a year-on-year increase of 13.16%, and realized a net profit attributable to the parent of 233 million yuan, a year-on-year increase of 21.49%.

It is understood that as a licensed AMC, Hyde Holdings entered the personal loan non-performing business market in 2021. In 2023, the business income from the disposal of non-performing assets in the financial industry was 1.112 billion yuan, an increase of 8.29% year-on-year, accounting for 90.43% of the total revenue. It is worth noting that the gross profit margin of this business reached 98.07%.

Regarding the disposal of the acquired asset packages, a local AMC person revealed to reporters that after purchasing the non-performing asset packages, the asset management company must classify and dispose of them, with the methods mainly focusing on collection calls and prosecution.

"In fact, the effect of telephone collection is not very good. It mainly depends on the probability. Debts that enter non-performing assets usually last for more than 90 days. Banks have also conducted telephone collection and outsourced collection for customers. The effect of the new round of telephone collection by asset management companies is also a matter of probability." The above-mentioned local AMC personnel said that judicial litigation is actually a better option for dealing with personal loan non-performing loans, especially batch litigation. "Some courts can accept batches of personal loan non-performing businesses, confirm the debt through judgments, and enter the execution level."

"The key point is that the amount of debt owed by customers with consumer loans or bad credit cards is not large, most of them are between 50,000 and 100,000 yuan. Some have no intention to repay, while others are unable to repay. Through judicial decisions and executions, the debt collection efforts may be increased to a certain extent." The above-mentioned local AMC personnel believe that "the lender may not have assets to execute, but the debt collection pressure can be increased by freezing the lender's account or restricting the payment and transfer functions of its WeChat, Alipay and other accounts. A person can apply for bank cards in multiple banks and even borrow other people's bank cards. However, if the transfer and payment functions of all mobile phone numbers under the individual's name and the associated WeChat and Alipay accounts are frozen, the impact on a person will be greater."

"Legal measures are also increasing the crackdown on the debtors. To collect debts, we still need to find a breakthrough to exert pressure." The above-mentioned local AMC personnel said that if they get a bad asset package at a 10% discount, the probability of recovering the loan principal within one year is about 15%, which is still a good deal. Moreover, there are not many restrictions on the collection time. If the loans cannot be collected, they can be packaged and transferred out.