SHANGHAI, July 29 China is creating
asset-management companies (AMCs) in five regions to buy bad
debt from domestic banks, in order to free up their balance
sheets to support new lending, sources with direct knowledge of
the matter told Reuters.
The move follows a surge in non-performing loans (NPLs) in
recent months, most notably in export-focused regions like the
Yangtze River Delta and Guandong, where firms are battling
rising costs and weak domestic demand.
To help bear the strain, the country's banking regulator
(CBRC) has authorised the city of Shanghai, and provinces of
Zhejiang, Guangdong, Jiangsu and Anhui, to establish and manage
their own AMCs, the sources said.
The initiative could potentially open doors for some private
"AMCs are a very profitable business, so many companies,
even foreign venture capital funds, are interested in getting
licensed," said a Hong Kong-based hedge fund manager who spoke
on condition of anonymity.
"The central government has said only wholly state-owned
entities can do the busines, but provincial governments can
still hire private enterprises or (joint stock) banks for their
service and expertise."
Since 2012, China has steadily upgraded methods to cope with
bad loans resulting from a massive credit splurge in 2009,
including the development of a trading platform to facilitate
banks offloading loans to investors.
Beijing's apparent readiness to let private companies
default on bonds has led to an increase in borrowing costs, as
lenders price in more risk, putting more firms under stress.
China already has four centrally controlled AMCs, including
the recently listed China Cinda Asset Management Co Ltd
, along with an array of smaller private AMCs and
debt-recovery specialists buying and selling bad debt for
(Reporting by Zhao Hongmei and Pete Sweeney; Additional
reporting by Tu Lianting at IFR in SINGAPORE; Editing by Simon