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Using asset management companies to resolve non-performing loans in China

Author

Listed:
  • Ma, Guonan

    () (Bank for Internatioal Settlements)

  • Fung, Ben S. C.

    () (Bank of Canada)

Abstract

To address the banking system’s non-performing loan (NPL) problem, the Chinese government set up four asset management corporations (AMCs). They were to buy bad debts from mainly the big four state-owned commercial banks and dispose of them over 10 years, taking a large step towards NPL resolution. So far, these AMCs have made a limited contribution to the resolution of the NPL problem. They have taken over well over half of the NPLs of the big four banks and probably resolved more than half of those acquired. However,under plausible recovery scenarios, the AMC losses would surpass the current financial contributions to the AMCs from both the Ministry of Finance (MoF) and the People’s Bank of China (PBC). This raises the question of who will pay for the AMC losses. Since their cash recoveries have lagged their interest obligations, they also face cash flow pressures. In response, the Chinese government has offered investment banking business licenses as incentives for the AMCs to meet the deadlines and recovery targets of their NPL resolution.

Suggested Citation

  • Ma, Guonan & Fung, Ben S. C., 2006. "Using asset management companies to resolve non-performing loans in China," Journal of Financial Transformation, Capco Institute, vol. 18, pages 161-169.
  • Handle: RePEc:ris:jofitr:0942
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. The Yin and the Yang of Shadow Banking in China
      by Steve Cecchetti and Kim Schoenholtz in Money, Banking and Financial Markets on 2014-09-08 17:38:23

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    Cited by:

    1. James Laurenceson & Zhao Yong, "undated". "Efficiency Amongst China’s Banks:A DEA Analysis Five Years after WTO Entry," EAERG Discussion Paper Series 1605, School of Economics, University of Queensland, Australia.

    More about this item

    Keywords

    banking; non-performing loans; asset management companies; China;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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