(Yicai) Dec. 12 -- Chinese commercial banks’ non-performing personal loans have swelled in the last few years amid a sluggish economy. In the first nine months, the outstanding amount of principal and interest on bad debt being put up for sale by lenders outstripped that of the whole of 2023, and the rate of such filings only got faster in the fourth quarter.

The Banking Credit Asset Registration and Transfer Center received filings for the ownership transfer of 371 non-performing individual personal loans in the first three quarters. The outstanding amount of principal involved was CNY57.3 billion (USD7.9 billion) while that of both principal and interest amounted to CNY101.2 billion (USD13.9 billion), more than the whole of last year.

And in the fourth quarter, the number of filings increased substantially. Half of them are personal consumption and small business loans, and overdrafts on credit cards also make up a significant part.

Generally, banks will make a bigger effort to dispose of non-performing loans towards the end of the year, said Ye Yindan, a researcher at the Bank of China's research institute.

But banks are finding it harder to deal with bad personal loans as the macro economy comes under pressure and people’s income growth slows, Yicai learned through interviews with industry insiders.

Bank staff now need to actively reach out to potential investors to negotiate a better deal for the sale of non-performing assets, instead of dealing directly with large financial institutions as was the norm in the past, a person based in Guangdong province who is experienced in handling bad debt said.

These days, asset management companies tend to partner with third parties that can help with the disposal of bad debt, as they are not experienced in handling such matters, the person said. 

This way, the asset manager plays the role of a ‘co-operating investor.’ With lower risk, AMCs are responsible for providing funds in return for more stable fixed returns. While, as the party bearing the higher risks, private bad asset disposers are in charge of the actual implementation of such projects and seek premium returns, the person added.

Some banks have also started to actively find buyers for non-performing loans themselves, drawing closer ties with AMCs, brokers, trusts, and other potential institutional investors through marketing events in an effort to build an ecological circle for bad asset disposal.

Editors: Tang Shihua, Kim Taylor