AMCs see windfall from bad loan surge

Asset management companies are likely to receive a windfall from the bad loan surge in China, triggered by the novel coronavirus outbreak, despite the ongoing efforts to boost financial support for small and medium-sized enterprises, analysts said.

"Based on relatively prudential assumptions, we estimate that the epidemic will trigger a 250-billionyuan ($35.33 billion) increase in the nonperforming loans of commercial banks," said Liao Zhiming, chief banking analyst at Tianfeng Securities Co.

Asset quality is expected to worsen for SMEs in the sectors badly hit by the epidemic, such as catering, tourism and transportation, Liao said in a report on Feb 13.

The nonperforming loan ratio of personal loans for small business owners may increase significantly in the hard-hit sectors. The asset quality of credit card debt and consumer loans may also suffer in the short term in the regions taking a heavy blow from the epidemic, he said.

Nonperforming asset management companies could help SMEs get through tough times by defusing the bad assets through various measures, including debt restructuring, debt financing and investing in equity assets, said Yang Jin, a senior analyst with banklawcn, a WeChat official account registered by Shanghai Faxun Financial Information Service Co.

Financial regulators have encouraged banks to temporarily exempt medical and government staff participating in the control of the novel coronavirus outbreak and those who temporarily lost their sources of income from being included in the list of default clients, if their payments on personal loans or credit cards are overdue because of the epidemic.

The exemption, however, is limited in scope. As household incomes declined due to the epidemic, the risk of defaults on personal loans and credit cards is still high. Asset managers could make a difference by disposing of toxic personal loans using NPL securitization as a technique, Yang said in an article posted on banklawcn on Feb 14.

By the end of February, the outstanding balance of nonperforming loans of the Chinese banking sector stood at 3.3 trillion yuan. The NPL ratio increased by 5 basis points from the previous month to 2.08 percent, according to the China Banking and Insurance Regulatory Commission.

The outstanding balance of special mention loans, potentially weak loans presenting an unwarranted credit risk, was 5.8 trillion yuan. The ratio of special mention loans to total loans rose by 17 basis points month-on-month, mainly because overdue personal housing loans and credit card payments were temporarily classified as special mention loans due to the epidemic, the regulator said.

Xiao Yuanqi, chief risk officer of the CBIRC, said on March 17 that the impact of the epidemic on nonperforming loans will be gradually revealed in the next few months.

The CBIRC has given approval for the Beijing-based Jiantou CITIC Asset Management Co to be transformed into a financial asset management company and renamed as China Galaxy Asset Management Co, the regulator said in a notice posted on its website on March 16.

China Galaxy Asset Management will become the fifth authorized national State-owned asset management company after the country set up four national AMCs to deal with distressed assets of large State-owned banks in 1999.

Jiantou CITIC Asset Management was established in 2005 with registered capital of 1.9 billion yuan. Currently, Central Huijin Investment Ltd, a State-owned investment company, holds 70 percent of its outstanding shares. The rest is held by CITIC Securities Co Ltd, according to Tianyancha, a business data search platform.