Foreign media reported that the China Banking Regulatory Commission (CBRC) recently approved the first national asset management company (AMC, commonly known as a “bad debt bank”) in more than 20 years to respond to the increasing wave of SOE defaults and the surge in bad debt following the epidemic.
China Galaxy will be the fifth AMC established in China to assist state-owned banks in handling and disposing of non-performing assets on their balance sheets.
In fact, China’s economy has returned to growth at the expense of the banking sector, which has been instructed by the Chinese government to give some facilities to lenders to assist them in weathering the epidemic. By the end of 3Q, the size of non-performing loans at Chinese commercial banks had risen to RMB 2.8 trillion (same below), the highest since March 2009.
CITIC Securities said the impact of the epidemic on the structure of the economy will be long-lasting and noteworthy, with sectors such as airlines, entertainment and restaurants, which used to have low NPL ratios, now seeing a surge in NPLs; the ongoing economic transformation has also led to an increase in NPLs in sectors such as retail.
Admittedly, China’s bond market has faced dramatic turmoil this year, with bond defaults amounting to 104 billion yuan as of November and a record high expected for the year.
Sun Tianqi, director of the People’s Bank of China’s Financial Stability Bureau, has also said that commercial banks should raise reserves for non-performing loans and accelerate the disposal of non-performing assets to protect asset quality.
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