Local asset management companies on the rise in China to handle regional NPLs
Jun 18, 2019 (China Knowledge) - Local distressed asset managers are on the rise in China as the country explores a new model of handling regional non-performing loans (NPL).
Previously, NPL management in China were mainly conducted by the country’s big 4 asset management companies such as Huarong, Cinda, Orient and Great Wall which were set up in 1999 to take over bad debts from the country’s state banks. These companies are also subject to strict requirements on capital adequacy ratios, leverage ratios and other risk control standards set out by the China Banking and Insurance Regulatory Commission (CBIRC).
However, the newest generation of asset management companies (AMCs) differ greatly in that although they are licensed by the CBIRC, these AMCs are not regulated by the CBIRC but rather local authorities and command strong support from their respective governments with most having state-owned enterprises among their shareholders.
As a result, this new generation of AMCs face a lack of centralized regulation which leads to opacity among them, potentially creating certain unseen risks in the sector.
Currently, delinquent assets from regional banks are a leading source of NPLs in the banking sector with 31% of NPLs coming from regional banks as of the end of March this year according to data from the CBIRC.
Local AMCs can help to better manage these provincial or county level distressed assets due to their deeper knowledge and closer connection to their local business communities and economies.
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