Wednesday, October 13, 2004

I have been preoccupied with buying a car; finally decided on a Buick Regal, which happens to be a Chinese government approved model for government cadres. I guess it was fate.

The first item of interest is that the State Development Bank might take over NPLs from regional banks in the Northeast, repackage them, and sell them to someone. First of all, you can bet that Chen Yuan, the head of SDB, is fighting tooth and nail against this. The SDB has worked extremely hard in the past decade to keep its books in tip-top shape. Under Zhu, Chen managed to resist pressure to use the SDB to fund state construction projects. Zhu had to push that task on to commercial banks like CCB and ICBC. Now the Wen administration (the whole NE revitalization policy is Wen's policy "innovation") is trying to push the prize of NPLs from the northeast on to Chen. With Zhu retired, however, Chen might not be able to resist this time, especially given that Shang Fulin, who sees banks as policy tools, will soon take over the CBRC.

At the end of the article, it seems that the AMCs will also acquire part of this "prize." In fact, I think a major acquisition of NPLs by the AMCs seems likely in the near future. Bureaucratically, AMCs are the weakest players and are highly susceptible to policy intervention from other agencies. I bet that SDB will fight to acquire only the best NPLs or will take over only a small chunk of NPLs, while AMCs will once again end up with the lion share of NPLs. But I think this time around, SDB attempt to maintain the cleanest balance sheets in China will falter as more and more policy tasks are heaped on it.

Wednesday, October 13, 2004
BAD LOANSBank to acquire northeast NPLs Plans to repackage bad debt stem from greater flexibility for financial institutions
-------------------------------------------------------------------------------- China Development Bank is considering a plan to repackage non-performing assets worth hundreds of billions of yuan as part of Beijing's drive to revive the country's ailing northeastern provinces. Officials from the State Council Office for Invigorating Northeast China's Industrial Bases said the plan emerged from a policy granting more flexibility to the region's financial institutions.
"It is being studied and co-ordinated with relevant government departments," Wu Shiguo, deputy general director of the agency, said yesterday.
Mr Wu was in Hong Kong as part of an investment delegation from Heilongjiang.
The plan was first hinted at last month, when vice-minister for the agency, Song Xiaowu, said the CDB might take over regional NPLs and re-sell them at 15 to 20 per cent of book value. The bank would be empowered to acquire bad assets from regional commercial banks and state firms at a discount and bundle them for resale, greatly reducing the amount the original lenders would have to write off.
CDB announced earlier this year that it would offer a 10-year, 71.5 billion yuan line of credit for the northeast provinces of Liaoning, Heilongjiang and Jilin.
CDB officials could not be reached for comment.
Officials from the revitalising northeast China office said they were co-ordinating with local governments, the People's Bank of China and the China Banking Regulatory Commission on a more flexible policy for NPLs.
By the end of August, NPLs in the region totalled 405.33 billion yuan. Banks in the three provinces maintain a bad-debt ratio of 31.44 per cent - 16.78 percentage points higher than the national average, according to CBRC figures.
A number of pilot schemes for managing China's NPLs have emerged in recent years. The Industrial and Commercial Bank of China (ICBC) is selling NPLs worth billions of yuan back to state firms at a discount in an experiment that helps the banks write off bad debt while firms get to settle accounts.
"The variety of methods to resolve NPLs is greater and the channels to sell them increasing," said Su Xihe, general manager of China Huarong Asset Management Corp's department overseeing the northeastern and eastern regions.
Since Huarong's establishment in 2000 to manage NPLs for ICBC, the firm has taken over 81.1 billion yuan of non-performing assets from the northeastern rust-belt. It had disposed of 21.99 billion yuan of these as of the end of July.
Mr Su said they would be taking over assets worth a "considerable amount" from the bank soon.

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