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

  • Ma, Guonan

    ()

    (Bank for Internatioal Settlements)

  • Fung, Ben S. C.

    ()

    (Bank of Canada)

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.

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Article provided by Capco Institute in its journal Journal of Financial Transformation.

Volume (Year): 18 (2006)
Issue (Month): ()
Pages: 161-169

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Handle: RePEc:ris:jofitr:0942
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