Small Chinese banks dumping NPLs

Liquidating NPL assets to control related risks.

The Shenzhen branch of China CITIC Bank recently auctioned off a package of non-performing loans (NPLs) worth US$277 million for only US$3.3 million on the Shanghai United Assets and Equity Exchange in late June.

Shanghai Pudong Development Bank wrote down a total of US$83 million in bad loans and bad credit card assets during the first half of the year.

Guo Tianyong, director of the Research Center of China Banking at the Central University of Finance and Economics claims banks should be encouraged to liquidate their NPLs in a timely and dynamic fashion.

“Given that the commercial banks' NPL ratio is expected to continue rising, liquidating NPL assets can help them control the related risks," he said.

A recent spike in sales of NPLs by small and mid-sized commercial banks is related to policy adjustment by the central government. The State Council issued guidance for the financial services industry on July 1, which said that it would support banks' transfer of NPLs, and delegate more authority in voluntary NPL write-down to the banks, in a bid to allow them to control risks voluntarily in a timely manner.