Since the 18th National Congress of the Communist Party of China, under the strong leadership of the CPC Central Committee with Comrade Xi Jinping at the core, banking financial institutions have achieved phased results in preventing and resolving risks, and important progress has been made in financial reform and opening up. The Central Financial Work Conference held in October 2023 pointed out that it is necessary to comprehensively strengthen financial supervision, effectively prevent and resolve financial risks, and adhere to the prevention and control of risks as the eternal theme of financial work. It is necessary to revitalize the financial resources that are inefficiently occupied and improve the efficiency of the use of funds. Therefore, at present, mainland banking financial institutions need to transform from incremental expansion thinking to stock revitalization thinking, adhere to the "one-handed" incremental market, promote high-quality development, "grasp the stock market with one hand", effectively optimize the existing business structure, fully understand and attach great importance to the importance, urgency and necessity of revitalizing the stock of non-performing assets, take the initiative to meet the new challenges, new difficulties and new problems faced by the "stock era", fully grasp the new situation, new changes and new characteristics of the "stock era", and make every effort to reduce the historical burden. Resolve and eliminate stock risks, and make every effort to promote the high-quality development of banking financial institutions.
1. The basic concept and classification basis of non-performing assets of banking financial institutions
(1) Basic concepts
In accordance with the relevant regulations and management measures for the risk classification of financial assets, the financial assets of the banking industry are divided into five categories, namely normal, concern, subordinate, doubtful and loss, of which the secondary, doubtful and loss are collectively referred to as non-performing.
(2) Classification basis
On July 1, 2020, the Measures for the Risk Classification of Financial Assets of Commercial Banks (hereinafter referred to as the "Classification Measures") jointly formulated by the China Banking and Insurance Regulatory Commission and the People's Bank of China came into effect. According to the four principles of authenticity, timeliness, prudence and independence of commercial banks' risk classification, in order to promote commercial banks to accurately assess credit risks and truly reflect the quality of financial assets, according to the new Classification Measures, the core meanings of financial non-performing assets are as follows: first, subordinated, where the debtor is unable to repay the principal, interest or income in full, or the financial assets have been impaired; Interest or income, financial assets have been significantly credit impaired, and the third is loss, after all possible measures are taken, only a very small part of the financial assets can be recovered, or all financial assets are lost.
At the same time, the Classification Measures also clearly stipulate that financial assets in the following four situations are at least classified as subordinated: (1) the principal, interest or income is expected to exceed 90 days, (2) the financial assets have been impaired in credit, (3) the external rating of the debtor or the financial assets has been significantly downgraded, resulting in a significant decline in the debtor's ability to perform the contract, and (4) the debts of non-same retail debtors have been overdue for more than 90 days among all the debts of all banks.
Second, the basic status quo and causes of non-performing assets of banking financial institutions
(1) The status quo of non-performing assets
According to the data released by the State Administration of Financial Regulation, from 2021 to 2023, the balance of non-performing loans of mainland commercial banks will be 2.85 trillion yuan, 2.98 trillion yuan and 3.22 trillion yuan respectively, showing an overall growth trend, and the average non-performing loan ratios will be 1.73%, 1.71% and 1.62% respectively, showing an overall downward trend. From the perspective of the non-performing loan ratio of sub-institutions, rural commercial banks have the highest non-performing loan ratios, with 3.63%, 3.22% and 3.34% respectively from 2021 to 2023, and the balance of non-performing loans is 765.5 billion yuan, 754.6 billion yuan and 862.3 billion yuan respectively, followed by urban commercial banks, with non-performing loan ratios of 1.90%, 1.85% and 1.75% respectively from 2021 to 2023, and the balance of non-performing loans is 440.3 billion yuan, 477.6 billion yuan and 501.7 billion yuan respectively. On the whole, the non-performing loan ratios of large commercial banks and joint-stock commercial banks were basically the same, and the non-performing loan ratios of foreign banks were the lowest.
2. Since the second quarter of 2014, six banks, including Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, China Construction Bank, Bank of Communications and China Merchants Bank, have been approved to implement the advanced method of capital management, while the rest of the banks still follow the original method.
3. Since 2019, the Postal Savings Bank has been included in the summary of "large commercial banks".
(2) Analysis of causes
1. The impact of the transition of the business cycle. From the perspective of economic development cycle, since the outbreak of the global financial crisis in 2008, in order to stabilize economic development, the mainland has launched trillions of yuan of fiscal stimulus policies and loose monetary and credit policies, and the mainland's economic growth and people's livelihood and employment have been guaranteed; The lag in transformation, coupled with the impact of the epidemic and the deterioration of the international economic and trade environment, has led to a reversal of the market supply and demand situation, increased downward pressure on the industry, a decline in operating efficiency, and an increase in credit risk, which in turn has been transmitted to banking financial institutions and formed non-performing assets.
2. The results of the transformation of financial institutions. Banking is an industry that operates risks, and risks and returns go hand in hand. From the perspective of the development path of financial institutions, in the past few years, financial institutions have released high-energy market vitality with the support of loose credit policies. In terms of specific business forms, shadow banking products such as trusts, asset management, and wealth management have also emerged, which has led to the emergence of hidden risks to a certain extent. However, with the return of the economy to rationality, the hidden risks of commercial banks are gradually exposed, under the macro-control measures, banking financial institutions began to reduce the scale of credit, improve access conditions, reduce the discount rate of collateral, in order to prevent credit risks, a series of measures lead to the financial risk of highly leveraged enterprises, the relationship between banks and enterprises is gradually tense, non-performing loans appear "double rise", and banking financial institutions also "pay" for their own behavior.
3. The throes of high-quality economic development. The economic development model of the mainland is changing from real estate and land finance to high-quality development. According to statistics, the non-performing rate of real estate credit business of many banks is about 5%, much higher than the average non-performing rate. As of the end of June 2023, the balance of non-performing loans in the real estate industry of 18 key listed banks (including 6 large state-owned banks, 10 joint-stock banks and 2 urban commercial banks) totaled 297.026 billion yuan, an increase of 20.932 billion yuan from the end of the previous year, of which the new non-performing loans involving real estate by 10 joint-stock commercial banks accounted for about 70% of the total non-performing loans of the banking industry. Housing prices are gradually returning to rationality, the decline in profits of real estate companies cannot support high capital costs, the capital chain is becoming increasingly tight, a large number of credit funds invested in real estate and related industries are overdue, and non-performing credit assets related to housing are high.
3. Ideas and countermeasures for banking financial institutions to revitalize non-performing assets
Under the new economic and financial situation, banking financial institutions should keep up with the pace of the times, accelerate the transformation of business development, vigorously revitalize the stock of non-performing assets while strictly controlling incremental risks, turn "dead money" into living water, and make every effort to promote operation and management to achieve high-quality development.
(1) Highlight the key points and have a purpose.
First, it is necessary to consolidate the responsibility for the management and control of existing financial assets, clarify key industries and fields, reasonably control financial risks, and prevent large-scale non-performing explosive growth. For the company's stock risk business, post-loan management can be strengthened, with the help of big data and other intelligent digital means, in-depth analysis of the company's business situation, the establishment of a risk early warning mechanism, the first time after the risk exposure can be found and timely take corresponding measures. For enterprises with operational value, banks and regulatory departments should take the initiative to intervene and take unified action to achieve resource integration and help enterprises save themselves from difficulties through debt restructuring led by creditors committees; for customers who have initiated judicial liquidation procedures, they should solve problems in accordance with laws and regulations, and help enterprises get out of difficulties and minimize bank losses through bankruptcy reorganization procedures; for the credit business of universal Save Deposits, they should implement policies according to the actual situation, fully reflect the political and people's nature of finance, and benefit the people; and operate in good faith for customers who do have temporary financial difficulties due to cyclical fluctuations in the economy or occasional investment failuresBanks should take the initiative to help enterprises tide over difficulties and comprehensively use credit support, interest reduction, extension of interest payment cycles, extension of loan principal and other means to help enterprises tide over difficulties and achieve the goal of supporting the development of the real economy;
(2) The system comes first, and the collection is standardized.
The revitalization of non-performing assets is a systematic and complex project, and in the process of revitalizing the stock of non-performing assets, it is likely to involve banks, investors, asset companies, debtors, guarantors, etc., and all parties are interrelated and complex. Therefore, a sound system design is the premise for the disposal and revitalization of non-performing assets, so as to escort the long-term, sustainable and healthy development of the revitalization of non-performing assets. In terms of system design, at least there should be a sound assessment mechanism, reward and punishment mechanism, collection mechanism, transfer mechanism, exit mechanism, approval mechanism, supervision mechanism and talent mechanism for non-performing asset management, so that every work has rules to follow and laws to follow, so as to achieve the compliant and healthy development of the non-performing assets liquidation and revitalization business.
(3) Dare to innovate and take multiple measures at the same time.
At present, the collection of non-performing assets mainly relies on two methods, one is judicial collection, and the other is the transfer or restructuring of creditor's rights. In terms of judicial collection, it mainly relies on the power of the court to achieve cash recovery through compulsory enforcement, repayment of debts in kind, debt-to-equity swaps, etc. However, this method often has a greater impact on the debtor and will also cause greater losses to the creditor, which is not conducive to the integration and utilization of social resources. In terms of the transfer of creditor's rights, it currently mainly relies on the five major national financial asset management companies and 60 provincial-level local asset management companies. Compared with the current non-performing asset disposal market, the digestion capacity of the above two methods is insufficient. The successful revitalization of non-performing assets requires different investment entities to provide all-round support such as capital, technology, personnel, and resources for the non-performing underlying assets, and requires the cooperation of financial forces and industrial forces to make the resources of all parties reasonably matched in a relatively free market, each performing its own duties, and taking what it needs, so as to achieve balanced and coordinated development. Therefore, in the ways and means of disposal of non-performing assets, in addition to the traditional non-litigation collection, judicial collection, bankruptcy reorganization, bankruptcy liquidation, transfer of creditor's rights, transfer of income rights, asset securitization, etc., banking financial institutions can also take advantage of the advantages of cooperation with local state-owned enterprises to better play the role of the main force of local finance and open up the channels of bank-government-enterprise cooperation. Strive for the recognition and support of local governments, strengthen the overall planning and dispatch of resources, efficiently coordinate with relevant business entities such as interbank institutions, law firms, consulting agencies, and evaluation agencies, increase the depth of cooperation with local state-owned enterprises, and obtain more resources in government debt resolution and non-standard business transformation. At the same time, it is also necessary to reduce financing costs as much as possible, revitalize the stock of non-performing assets through complementary interest rate spreads, the introduction of strategic investors, investment promotion, capital injection, etc., continue to improve the ability of financial services for the real economy, achieve benign interaction and win-win cooperation between banks, governments and enterprises, and effectively revitalize non-performing assets while supporting local economic development.
Unit: Chongqing Three Gorges Bank Co., Ltd
Author: Huang He
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