China Banks Struggle with Non-Performing Asset Management... Considering Issuance of 200 Billion KRW ABS

Chinese banks are reportedly planning to massively issue asset-backed securities (ABS) based on non-performing assets. This is due to the snowballing increase in bad assets as personal defaults rise amid the economic downturn.

On the 20th, major foreign media reported that the scale of ABS issued by Chinese financial institutions based on non-performing loans related to mortgages and credit cards increased by about 40% compared to the previous year, reaching an all-time high.

According to major foreign media, six major banks including Jiangsu Bank and Jiangsu Bank in China are reportedly considering issuing ABS worth 1.5 billion yuan (approximately 273.195 billion KRW) based on non-performing loans. The issued ABS are expected to be purchased by asset management companies, specialized non-performing loan investors, and some hedge funds, the media reported.

ABS refers to the issuance of securities backed by assets held by a company to raise funds. Until now, Chinese banks have handled non-performing assets through bad banks that specialize in managing bad loans. However, since 2012, Chinese authorities have actively encouraged the securitization of non-performing assets, leading to the disposal of bad loans through ABS issuance.

Chinese banks appear to have made this decision as bad loans rapidly increased due to rising delinquency rates on mortgages and personal credit loans amid this year's economic downturn. According to major foreign media, Chinese authorities recently placed 8.54 million borrowers who failed to repay their debts on a 'credit loss blacklist.' This accounts for about 1% of the total labor force and represents a sharp increase in delinquents compared to early 2020 (5.7 million), when pandemic-related city lockdowns were at their peak.

As the number of debtors unable to repay their debts rises, the National Financial Regulatory Administration announced that the balance of non-performing loans in Chinese banks reached 3.2 trillion yuan as of the end of the third quarter this year, a 33% increase compared to 2019 (2.4 trillion yuan).

In response, authorities are urging banks to swiftly handle non-performing assets to prevent major disruptions in the financial market. Liao Ziming, an analyst at China Merchants Securities, said, "Banks are under pressure to dispose of bad assets," adding, "Asset securitization is one of the effective means."

This content was produced with the assistance of AI translation services.