Monday, June 14, 2004
China has engineered yet another NPL reduction scheme. In this scheme, the PBOC and the banks will split the cost of the NPLs, with AMCs benefiting. Essentially, the two banks can sell NPLs to the PBOC at 50% discount, which is much higher than market value (around 10%). The PBOC then takes a hit and sell it to the AMC via open bidding. The AMC will probably buy the NPLs at 15-30% of face value, depending on the degree of administrative intervention from the State Council. As for how AMCs will pay for this, they will either work out some deal with the MOF to use part of the recovered cash from previous NPLs, or they will once again issue bonds to the banks or, even better, to foreign funds. At least that is my take.
SCMP
Saturday, June 12, 2004
Asset managers to bid for doubtful loans worth billions Proceeds from the auction of the portfolios will help prepare two state-owned banks for stock listings
NICHOLE CHAN and BEI HU
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Doubtful loans worth hundreds of billions of yuan will be auctioned to the mainland's four official asset management companies this month, with proceeds to be used to help two state-owned banking giants prepare for public listings. The loans are from the portfolios of the Bank of China (BOC) and China Construction Bank (CCB). Bid submissions were scheduled for next week, with auction results expected by the end of the month, industry sources said yesterday. "We are preparing the bids," said a China Huarong Asset Management spokesman, who declined to offer further details.
Neither the People's Bank of China nor the Ministry of Finance have publicised details about the loans auction, but earlier reports have indicated the central bank would buy the loans from the two banks at a 50 per cent discount to face value. Sources estimate the face value of the debt at 250 billion to 300 billion yuan.
"In order for the transfer to be meaningful, it will have to be a big number," a western observer said.
The loans would be sold outright to the asset management companies based "entirely on commercial considerations", a mainland banking source said.
Should the asset managers be given liberty in their bids, the central bank may have to absorb a substantial loss in the transaction. That would represent a departure from the official mandate of the asset managers, under which they are expected to pay full face value for non-performing loans from the Big Four banks, which came to 1.39 trillion yuan in 1999.
The auction follows the central bank's US$45 billion cash injection into CCB and BOC in January, funded with China's foreign exchange reserves. Both moves are intended to help improve the two lenders' asset quality before stock-market listings next year.
"Doubtful loans" are the second-worst designation in the mainland's new five-category loan classification system, which also includes the categories pass, special-mention, sub-standard and loss. Lenders must make a 50 per cent provision for such loans.
BOC had a non-performing loan ratio of 16.29 per cent at the end of last year, according to its annual report. About 116.3 billion yuan, or more than 30 per cent of such loans, were marked doubtful. CCB had problem loans worth 193.5 billion yuan - or 9.12 per cent of its loan book - 137.5 billion yuan of which were doubtful.
The asset managers - Huarong, Cinda, Oriental and Great Wall - were set up in 1999 to help the Big Four commercial banks sell their huge non-performing loan burdens.
In the forthcoming auction, however, all four asset managers have been invited to bid on the CCB and BOC loans.
A western observer questioned how the asset managers would be able to finance their acquisition of the new non-performing loans.
"I have been told this will have to be a real payment," he said. "I don't know where the [asset managers] are going to get the money."
SCMP
Saturday, June 12, 2004
Asset managers to bid for doubtful loans worth billions Proceeds from the auction of the portfolios will help prepare two state-owned banks for stock listings
NICHOLE CHAN and BEI HU
Prev. Story | Next Story
--------------------------------------------------------------------------------
Doubtful loans worth hundreds of billions of yuan will be auctioned to the mainland's four official asset management companies this month, with proceeds to be used to help two state-owned banking giants prepare for public listings. The loans are from the portfolios of the Bank of China (BOC) and China Construction Bank (CCB). Bid submissions were scheduled for next week, with auction results expected by the end of the month, industry sources said yesterday. "We are preparing the bids," said a China Huarong Asset Management spokesman, who declined to offer further details.
Neither the People's Bank of China nor the Ministry of Finance have publicised details about the loans auction, but earlier reports have indicated the central bank would buy the loans from the two banks at a 50 per cent discount to face value. Sources estimate the face value of the debt at 250 billion to 300 billion yuan.
"In order for the transfer to be meaningful, it will have to be a big number," a western observer said.
The loans would be sold outright to the asset management companies based "entirely on commercial considerations", a mainland banking source said.
Should the asset managers be given liberty in their bids, the central bank may have to absorb a substantial loss in the transaction. That would represent a departure from the official mandate of the asset managers, under which they are expected to pay full face value for non-performing loans from the Big Four banks, which came to 1.39 trillion yuan in 1999.
The auction follows the central bank's US$45 billion cash injection into CCB and BOC in January, funded with China's foreign exchange reserves. Both moves are intended to help improve the two lenders' asset quality before stock-market listings next year.
"Doubtful loans" are the second-worst designation in the mainland's new five-category loan classification system, which also includes the categories pass, special-mention, sub-standard and loss. Lenders must make a 50 per cent provision for such loans.
BOC had a non-performing loan ratio of 16.29 per cent at the end of last year, according to its annual report. About 116.3 billion yuan, or more than 30 per cent of such loans, were marked doubtful. CCB had problem loans worth 193.5 billion yuan - or 9.12 per cent of its loan book - 137.5 billion yuan of which were doubtful.
The asset managers - Huarong, Cinda, Oriental and Great Wall - were set up in 1999 to help the Big Four commercial banks sell their huge non-performing loan burdens.
In the forthcoming auction, however, all four asset managers have been invited to bid on the CCB and BOC loans.
A western observer questioned how the asset managers would be able to finance their acquisition of the new non-performing loans.
"I have been told this will have to be a real payment," he said. "I don't know where the [asset managers] are going to get the money."
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