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AMCs and NPL activity in China

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AMCs and NPL activity in China

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    1. The Second Forum for Asian Insolvency Reform (FAIR) Bangkok, Thailand 16-17 December 2002 AMCs and NPL activity in China

    2. Restructuring the Chinese banks: NPLs and AMCs

    3. Background Big four commercial banks Bank of China Agricultural Bank of China Industrial and Commercial Bank of China China Construction Bank Spun-off from PBOC in 1980s Owned by Ministry Of Finance Policy Banks E.g., China Development Bank Others Second Tier Institutions; Rural Cooperatives

    4. Background (cont’d) Problems faced by “Big 4” Commercial Banks Overstaffed Undercapitalised Historically, no competition to drive best practices Lending at direction of state based on political/social considerations “Success” measured, in part, by loan volumes

    5. Estimated NPLs in China

    6. The restructuring

    7. The AMCs

    9. Barriers to recoveries Estimates of overall recoveries vary Consensus is less than 20% of face Barriers to recovery include Inherent weaknesses in the loan portfolio, in part due to: Age of loans transferred to AMCs Mandated by Government Inadequate legal framework E.g., Bankruptcy Law provisions Resistance to reform Debtor expectations Local politics Foreign investor publicity

    10. AMC reported recoveries Ministry of Finance target of 30% cash recovery rate Cumulative reported cash recovery rate is 21.6% Small proportion of loans “dealt with” Early recoveries relatively high – “low hanging fruit?” Situation unlikely to improve over time

    12. Issues for foreign investor participation Remittance Information Expectation gap Pricing Language Everything is in Chinese !

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