npl disposal in china npl disposal in china han bin han bin may 2005

NPL Disposal in ChinaNPL Disposal in China

Han BinHan Bin

May 2005

22

ContentsContents

Part I FundamentalsPart I Fundamentals

Part II AMC OperationPart II AMC Operation

Part III Case StudyPart III Case Study

Part IV ProspectPart IV Prospect

33


Definition of NPLDefinition of NPL Status of NPLStatus of NPL The AMCsThe AMCs Methods of NPL Disposal Methods of NPL Disposal

44


Definition of NPLDefinition of NPL

Five categories of risk classification of loans:Five categories of risk classification of loans:

Standard, Special mention, Standard, Special mention, Sub-standard, Sub-standard, Doubtful, LossDoubtful, Loss

55


Status of NPLStatus of NPL

NPLs in all BanksNPLs in all Banks

By the end of 2002: RMB 2.6 trillion, 19.9% By the end of 2002: RMB 2.6 trillion, 19.9%

By the end of 2003: RMB 2.4 trillion, 15.2%By the end of 2003: RMB 2.4 trillion, 15.2%

By the end of 2004: RMB 1.8 trillion, 12.9%By the end of 2004: RMB 1.8 trillion, 12.9%

By the end of first quarter 2005:By the end of first quarter 2005:

RMB 1.8 trillion, 12.4% RMB 1.8 trillion, 12.4%

66


Status of NPLStatus of NPL

NPLs in the Asset Management Corporations NPLs in the Asset Management Corporations ( Huarong, Great Wall, Orient, Cinda ) ( Huarong, Great Wall, Orient, Cinda )

Acquired in 1999-2000: RMB 1.4 trillion Acquired in 1999-2000: RMB 1.4 trillion

Acquired in 2003-2004: RMB 0.5 trillionAcquired in 2003-2004: RMB 0.5 trillion

77


The AMCsThe AMCs

Establishment:Establishment: 1999 1999 Purpose:Purpose: To improve asset quality of the state- To improve asset quality of the state-

owned banks, hedging and avoiding financial owned banks, hedging and avoiding financial crisis; To promote loss relief and restructuring of crisis; To promote loss relief and restructuring of the state-owned enterprises. the state-owned enterprises.

Registered capital:Registered capital: RMB 10 billion each AMC RMB 10 billion each AMC

88


Methods of NPL DisposalMethods of NPL Disposal Banks:Banks:

collection, lawsuit, portfolio salecollection, lawsuit, portfolio sale AMCs:AMCs:

collection, lawsuit, portfolio salecollection, lawsuit, portfolio sale debt restructuringdebt restructuring debt-equity swapdebt-equity swap joint venturejoint venture securitization, etc. securitization, etc.

99


Assets acquired from BanksAssets acquired from Banks Supportive PoliciesSupportive Policies Status of NPL DisposalStatus of NPL Disposal Problems and Possible solution Problems and Possible solution

1010


Assets acquired from banksAssets acquired from banks HuarongHuarong: RMB 407.7 billion (1999-2000): RMB 407.7 billion (1999-2000) Great WallGreat Wall: RMB 345.8 billion (1999-2000): RMB 345.8 billion (1999-2000) OrientOrient: RMB 271.4 billion (1999-2000) : RMB 271.4 billion (1999-2000)

RMB 124.2 billion (2003-2004)RMB 124.2 billion (2003-2004) CindaCinda: RMB 394.5 billion (1999-2000): RMB 394.5 billion (1999-2000) RMB 56.9 billion (2003-2004)RMB 56.9 billion (2003-2004) RMB 278.7 billion (2003-2004)RMB 278.7 billion (2003-2004)

1111


Supportive PoliciesSupportive Policies Financing:Financing: Issuing bonds, borrowing re-financing Issuing bonds, borrowing re-financing Management:Management: established procedures established procedures Authorization:Authorization: full right to recognize loss full right to recognize loss Tax and administrative fees:Tax and administrative fees: exempted exempted Foreign participation:Foreign participation: encouraged encouraged Assessment:Assessment: target and bonus on cash recovery target and bonus on cash recovery

1212


Status of NPL DisposalStatus of NPL Disposal ( as of the end of first quarter 2005 )( as of the end of first quarter 2005 )

HuarongHuarong: D.R. 75% / 38%, C.R.R. 14% : D.R. 75% / 38%, C.R.R. 14% Great WallGreat Wall: D.R. 62% / 49%, C.R.R. 10% : D.R. 62% / 49%, C.R.R. 10% OrientOrient: D.R. 57% / 18%, C.R.R. 9% : D.R. 57% / 18%, C.R.R. 9%

CindaCinda: D.R. 68% / 20%, C.R.R. 13%: D.R. 68% / 20%, C.R.R. 13%

NB: D.R.=Disposal Ratio; C.R.R.=Cash Recovery Rate. NB: D.R.=Disposal Ratio; C.R.R.=Cash Recovery Rate. ( for assets acquired in 1999-2000 only ) ( for assets acquired in 1999-2000 only )

1313


Problems and Possible solutionProblems and Possible solution ProblemsProblems

social creditabilitysocial creditability difficulty in pricing difficulty in pricing lack of judicial protection lack of judicial protection moral hazard moral hazard

Possible solutionPossible solution legislaturelegislature corporatize AMCs corporatize AMCs

1414


Case 1: Portfolio Sale through Bidding Case 1: Portfolio Sale through Bidding Case 2: SecuritizationCase 2: Securitization Case 3: AuctionCase 3: Auction Case 4: Enterprise RestructuringCase 4: Enterprise Restructuring

1515


Case 1: Portfolio Sale through Bidding Case 1: Portfolio Sale through Bidding AMC:AMC: Huarong Huarong Time:Time: November 2001 November 2001 Assets:Assets: NPL amounting to RMB 10.8 billion NPL amounting to RMB 10.8 billion Method:Method: Invitation for Public Bidding Invitation for Public Bidding Highlight:Highlight: Foreign Participation Foreign Participation

1616


Case 2: SecuritizationCase 2: Securitization AMC:AMC: Huarong Huarong Time:Time: June 2003 June 2003 Assets:Assets: NPL amounting to RMB 13.3 billion NPL amounting to RMB 13.3 billion Method:Method: Asset-backed Beneficiary Certificate Asset-backed Beneficiary Certificate Highlight:Highlight: Pilot case in domestic market Pilot case in domestic market

1717


Case 3: AuctionCase 3: Auction AMC:AMC: Great Wall Great Wall Time:Time: October 2002 October 2002 Assets:Assets: NPL amounting to RMB 19.8 billion NPL amounting to RMB 19.8 billion Method:Method: Auction Auction Highlight:Highlight: One-month-long operation One-month-long operation

1818


Case 4: Enterprise RestructuringCase 4: Enterprise Restructuring AMC:AMC: Cinda Cinda Time:Time: March 2000 - June 2003 March 2000 - June 2003 Assets:Assets: NPL amounting to RMB 178 million NPL amounting to RMB 178 million Method:Method: debt and equity restructuring debt and equity restructuring Highlight:Highlight: Double win Double win

1919

Part IV ProspectPart IV Prospect

Banks:Banks: Control of new NPLsControl of new NPLs Disposal of NPLs in stockDisposal of NPLs in stock

AMCs:AMCs: Corporatization Corporatization SpecializationSpecialization DiversificationDiversification

2020

Thank You

npl disposal in china npl disposal in china han bin han bin may 2005

Documents