10
10
Methods of NPL Disposal
• Capital injection by government • Establishment of AMCs
– Financing of AMCs – Methods of asset disposal
• Auction • Equity-debt swap • Asset backed securities
Cash
rate %
recovery rate
(%)
27.35
20.34
Great Wall
1832.4
15.64
10.56
Orient
966.8
29.91
21.89
Cinda
1331.4
39.15
33.20
AMCs overall 5876.2
26.79%
20.46%
(Source: PBC, CBRC)
Year
1993 1994 1995 1996 1997 1998 1999 2000 2001
Stock issue 314.54
Loan growth 6335.40
Stock issue/ Loan growth
4.96
138.05
7216.62
1.91
118.86
9339.82
1.27
341.52
NPLs of Chinese State-owned Banks:
Current Status, Origins and Disposal Methods
M. Chen, C. Jia and X. Xu Guanghua School of Management
Peking University
• Change in maturity structure of loans
9
9
Growth rate of China's GDP and loans
25%
20%
21.10%
15%
16.90% 13%
10% 5%
68%%
7.30% 8%
9.10%
0% 2000
2001
2002
2003
Growth rate of loans Growth rate of GDP
1
1
Overview of China’s Banking Sector
• Brief history
– Before 1979: PBC – 1979-84: Establishment of four SOCBs – 1986- : Establishment of joint-stock banks – 2001- : City Commercial Banks
• Decrease in NPLs
– Capital injection by government – Transfer of NPLs to AMCs – In Q2 of 2003, NPLs increased by RMB 18.3 billion
after taking into account of NPLs transfers
• Laeven and Majnoni (2003): in 2000, China: 3.6% and average of 106 countries: 6.67%
• Poor management and moral hazard
6
6
Capitals Raised by Chinese Companies
BOC
CCB
ABC
2000 2001 2002 2003
4
4
NPLs of Four SOCBs
Percent
Figure 4: NPL Ratio of the SOCBs
40 30
20
10
0 2000
2001
2002
Year
2003
5
ICBC BOC CCB ABC
5
Origins of NPLs
3 2.5
2 1.5
1 0.5
0
2001
NPLs
2002
2003
Year
Q3,2004
3
3
NPLs of Four SOCBs
RMB Billion
Figure 3: Amounts of NPLs Reported by SOCBs Themselves
1000பைடு நூலகம்
800
600
400
200
0
ICBC
Data source: ＩＮＦＯＢＡＮＫ
8
8
Reasons for the Decrease in NPLs ratio
• Increase in total amount of loans
– In 2003, the net increase was RMB 2,770 billions (24% total loans between 1991-2003)
10683.33
3.20
933.82
10712.47
8.72
803.57
11490.94
6.99
897.39
10846.36
8.27
1541.02
13346.61
11.55
1182.13
12439.41
9.50
7
7
2002
779.75
18979.20 4.11
2003
823.10
27702.30 2.97
– Increasingly more difficult
• Direct disposal by four SOCBs
11
11
NPL Disposal by the AMCs (As of end-Q3,2004)
AMCs Huarong
NPL disposed 1745.6
Asset recovery
• Policy loans • SOEs versus private sector • High level of debt of Chinese companies • Interest rate control
– Low base rate; lower than USA, India and Korea – Low spread between the deposit and lending rates
• Market share by assets (Q3, 2004)
– SCOBs: 54.1% – Joint-stock banks: 14.6%
2
2
NPLs of Four SOCBs
RMB Trillion
Figure 2: Amounts of NPLs in the Four SOCBs Reported by the PBC