Reconsideration of Nonperforming Loans

Source: Bank of observation; Author: Ping An Trust duct air control unit bond Leader Yuan Dongyang

If the "non-performing assets can not be transferred outside the" facts set up, which means that has gone through 10 years of commercialization process of China's banking industry seems to have returned overnight, "technical bankruptcy," the origin. What is the reason, making after several rounds of capital injection, the four major asset management companies stripping of non-performing assets, joint-stock reform and listing of commercial banks, in the degree of marketization is not the present, is still difficult to obtain sustained and healthy development, Management of the company's help?
Recently, the news of bad loans on the clamor. Recently, the CBRC issued the "appropriate adjustments on the local asset management companies related to the letter," not only relaxed the local asset management companies, "a province" quota restrictions, and worn on the local asset management company head of the "non-performing assets Transfer "of the tight hoop finally removed. This change, on the surface reflects the rapid expansion of non-performing assets disposal market, in fact, and the rapid accumulation of non-performing assets are inseparable. Fitch Ratings said Chinese asset managers will continue to increase their nonperforming asset management business, as Cinda's assets have expanded nearly threefold since late 2012, as banks' nonperforming loans are likely to rise further in the medium term. According to Standard & Poor's estimates, if the company's debt growth did not slow down, the problem of China's banking sector credit ratio may increase to 17% by 2020. If the above facts are established, this means that the Chinese banking industry, which has gone through more than 10 years of commercialization, seems to have returned to the "technical bankruptcy" point of origin overnight. What is the reason, making after several rounds of capital injection, the four major asset management companies stripping of non-performing assets, joint-stock reform and listing of commercial banks, in the degree of marketization is not the present, is still difficult to obtain sustained and healthy development, Management of the company's help?
First, some paradox

On the causes of bad loans, the industry is usually from the bank wind control system is imperfect, there are malfeasance and corruption in the credit review phenomenon, and the economic downturn led to reduced ability to repay the perspective of the answer. However, the paradox of the banking system, which is inconsistent with common sense, makes the answer to the standard banking theory seem less reliable.
The earliest paradox is the Western media on state-owned banks "technically bankruptcy" theory. According to statistics, as of the end of June 1997, four state-owned commercial banks to build non-performing loans of up to 1002 billion yuan, accounting for 25.6% of all loans, and in sharp contrast, nearly three decades, the US banking non-performing loans The rate peaked at 7.4% in 2008-2009. The result is also very different, the workers and peasants in the construction of four banks without a bankruptcy, while the US banking industry has plunged into bankruptcy. Obviously, only from the "technically" is difficult to explain. Another noteworthy is that state-owned banks in the injection of non-performing assets stripping and joint-stock reform, the non-performing loan rate remains high. In the case of continuous accumulation of banking risks, in November 1997, the National Financial Work Conference convened, proposed to further deepen the financial reform, rectify the financial order, to prevent and defuse financial risks, and strive to use about three years time, The financial market system and the financial regulation and control system, significantly improve the financial management and management level, the basic realization of the national financial order has improved markedly. In 1998, the Ministry of Finance issued 270 billion yuan of special treasury bonds to supplement the capital of state-owned commercial banks. In 1999, four financial asset management companies were set up successively. In 1998, the state-owned commercial banks , Stripping nearly 1.4 trillion yuan of state-owned commercial banks non-performing loans; January 2004, the State Council announced the use of 45 billion US dollars of foreign exchange reserves for the Bank of China, CCB supplementary capital, the implementation of joint-stock reform pilot decision in April 2005, The US $ 15 billion foreign exchange reserves for the ICBC to inject and implement the shareholding system reform program; October 2008, the State Council again through the Agricultural Bank to inject 19 billion US dollars of foreign exchange reserves to implement the shareholding system transformation. However, these measures have not fundamentally changed the status of non-performing loans. According to statistics, since 2000, the non-performing loan ratio of China's banking industry was 22.4% in 2000, 29.8% in 2001, 26% in 2002, 20.4% in 2003, 2004, 2005 due to Bank of China, China Construction Bank, ICBC A decline of 12.8%, 9.8%, to 2006 and further decreased to 7.5%. Although the shareholding system reform and listing to play a role in reducing the rate of non-performing, but if compared with the same period listed joint-stock banks, compared to the state-owned banks listed on the non-performing rate is still much higher: from 2004 to 2007, The non-performing ratio of the joint-stock banks is 5.0%, 4.2%, 2.8% and 2.2% respectively. The non-performing rate of the foreign banks is lower than that of the joint-stock banks. In 2005, the non-performing rate is 15.6%, 10.5%, 9.2% and 8.1% To 2007 were 1.1%, 0.8%, 0.5%. It can be seen that the market-oriented reform has reduced the NPL ratio to a certain extent, but it can not be regarded as the whole factor that affects the NPL ratio. So that the high rate of bad loans in the banking sector, in particular the non-performing rate of state-owned banks was significantly higher than joint-stock banks and foreign banks, there must be a deeper reason.
Second, a model
After the founding of the state-owned banks did not immediately obtain commercial status, including the People's Bank of China, including the unified banking system, more like the Treasury Department of the cashier. The banking system, as a part of economic development policy, exists to convert the savings of the residents into the capital of the state-owned economy and complete the primitive accumulation of capital.
In order to achieve the above objectives, China's financial system has the following characteristics: First, most of the banks are state-owned or controlled, the chairman of the board, the president has a government agency background, and the banking license is strictly controlled; Only a few years to do; Second, the capital market development is lagging behind, in addition to deposits, residents of asset allocation is very limited, even for some time, private fund-raising are felonies; Third, deposit and loan interest rates are set limits, The deposit interest rate is the upper limit of the deposit rate is strictly limited, the spread is the bank's most important source of income, thus, in short supply period, deposit size is a measure of the performance of financial institutions, the main indicators; Fourth, the central bank on behalf of the Government Window guidance and credit scale control and other measures to determine or influence the bank's loans to invest in state-owned economic and policy projects priority access to most of the loans, in addition to economic transition arising from the non-state economy to obtain the remaining credit funds; Yes, the government provides credit support for the banking system, through the financial, foreign reserves and other forms for the bank to add capital, or to resolve non-performing assets. Through this institutional arrangement, the government concentrates the financial surplus of the residents in the form of deposits in the banking system and continues to transfer the financial surplus to the state-owned economic and policy projects through the banks to ensure that they receive sufficient and cheap funds.
Under this model, the financial system exists as a channel for financial surplus transfer between residents and state-owned economic and policy-oriented projects. In the case of nonperforming loans, subsidies for state-owned and policy-oriented projects are mostly inefficient, and these subsidies come in the form of nonperforming loans, although they appear to be on banks' statements, but ultimately By the Government for processing. Therefore, non-performing loans can be regarded as the government's cost to ensure the normal operation of state-owned economic and policy projects, as long as the government from the state-owned economic and policy-oriented projects play a role (security employment, promote infrastructure construction, Differences and the consolidation of national defense, etc.) is greater than this cost, this model is efficient. With the deepening of the transition, the market economy of the real economy is getting higher and higher. The marketization degree of the banking system that undertakes the policy task under this mode will also increase, and the "necessity" of bad loan will be greatly reduced. The NPL ratio is declining; but on the other hand, as long as the state-owned economy and policy-oriented projects still exist, or the policy-related tasks are necessary to expand, and as long as these economies, projects and tasks still need subsidies, banks, especially state-owned banks, The need to continue to play the above role, which means that regardless of whether these banks listed, the wind control system is complete, there is no corruption and malfeasance, non-performing loans will exist, but also probably higher than normal. This should be the paradox above the deep-seated reasons. Recognize the bad loans, to be placed in the context of China's unique transition.
Third, some examples
One example is that in the economic transition period, any shake the above model of financial innovation, will affect the government so that even the government to introduce policies to restrict. For example, in the above model, to ensure that funds deposited in the form of concentration in the banking system is a prerequisite, therefore, trying to spread the money from the banking system innovation will be treated with caution. In 2014, when the balance of treasure this new financial management tools swept through the land of China, caused a financial uproar. Balance of money is to take full advantage of the lower degree of marketization of deposit interest rates and the higher degree of inter-bank interest rates and the difference between the profit of financial products, its ability to absorb the ability of the residents of the original control competition and The low deposit market was marked by intense competition for deposits, which further forced the government to deregulate deposit rates. This financial innovation is to adapt to China's financial system market-oriented reform requirements. Greenspan said: "Balance of money will be the first step in the normalization of China's financial system." If the commercial banks to take measures to carry out the suppression of the balance of treasure is a reasonable market behavior, which reflects the financial system market- . Therefore, even though the 18th National Congress of the Communist Party of China has established the guiding line for the market-oriented reform of the financial system, the government will still be cautious about various reform initiatives in practice.
Another example is that since the economy entered the "new normal", the government will still encourage banks with a "policy" label areas of credit. For example, the central bank, the CBRC has repeatedly issued a document to urge financial institutions to increase support for small and micro enterprises (Note: Although the small micro-enterprise is not a typical sense of the policy projects, but the government adjust the economic structure of the small micro- To the extent of the "policy" label). Data show that by the end of June 2015, the national financial institutions small and micro business loans 16.2 trillion yuan, an increase of 14.5% over the same period of large and medium-sized enterprise loan growth were 5.2 and 3.3 percentage points. Of course, the increase in support of the results is that small micro-enterprise loans to become the hardest hit bank bad loans. According to statistics, the first quarter of 2016, small micro-enterprise loan non-performing rate of 2.7%, 0.1 percentage points higher than the beginning of the year, higher than the bank non-performing rate of 1.75% nearly 1 percentage point. In addition, the State Council also issued a letter in 2015 to encourage banks to shantytowns loans. Thus, in the real economy has greatly improved the degree of market conditions, the Government will still direct or indirect control of the banking system for its policy objectives. As long as this need exists, the financial system will be more or less associated with the original mode of operation, non-performing loans naturally difficult to reduce to normal levels.
Fourth, a little conclusion
In view of the characteristics of the problem of non-performing loans in China's banking system, the author believes that: First, contrary to the popular view, since the state-owned economy and policy-oriented projects still play an important role in the economic transition period, the banking system under the control of the government of them Subsidies are therefore necessary, so it may not be right to push too quickly the reform of the banking market to make it a full commercial entity. This means that the process of financial marketization (or liberalization) should be consistent with the degree of marketization of the real economy, too fast or too slow will damage the economic operation. This consistency reflects the "adaptive efficiency" (proposed by Douglass North), meaning that the best is not necessarily the most appropriate. Second, if the state-owned economy and policy-oriented projects that need subsidy exist in the real economy, the problem of non-performing loans can not be solved only by improving the bank management (such as raising the standard of wind control). On the contrary, Continue to promote the market-oriented reform of the real economy. Third, because of the complex economic situation, market-oriented reforms can not be achieved overnight, non-performing loans will likely be long-term financial institutions face problems. Of course, as regulation loosens, AMCs may see opportunities for growth as part of a solution to the problem of bad loans.


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