China’s banking regulator is considering setting up new regional bad-debt managers to help clean up risks after the failure of thousands of peer-to-peer (P2P) lending platforms, people with knowledge of the matter said.
Companies in Shanghai, Zhejiang and Shenzhen have submitted applications to set up local asset managers dealing with bad loans, especially those from online lending platforms, said the people, who asked not to be identified because they were discussing a private matter.
The China Banking and Insurance Regulatory Commission has yet to approve the applications, the people said.
A two-year push to clean up China’s P2P sector, plagued by fraud and defaults, has led to the failure of more than 2,000 online platforms.
At their peak, they had almost 50 million investors and US$150 billion in debt outstanding.
Policymakers now have added impetus to clean up the bad debt as the COVID-19 outbreak threatens to further depress economic growth.
The plan comes as the nation’s four largest bad-debt managers balked at bailing out online lenders, the people said.
The new regional asset managers, once approved, would initially focus on P2P bad loans before gradually extending their business scope to other distressed assets, they said.
The commission did not immediately reply to a request for comment.
China’s online lending sector was born during a wave of deregulation. It was meant to provide small borrowers more access to the financial system, while allowing savers to collect double-digit yields.
However, as news of fraud and defaults spread and the market became ensnared in Chinese President Xi Jinping’s (習近平) crackdown on financial risk, the industry began to shrink.
Outstanding loans tumbled 48 percent during the first nine months of last year, while cities — including Shanghai — have ordered shutdowns of even the biggest players in the past few months.
Meanwhile, China plans to increase the tolerance for non-performing loans for local branches of financial institutions and encourage them to write off some bad loans to lower the non-performing loan ratio, commission official Ye Yanfei (葉燕斐) told a briefing in Beijing yesterday.
Affected by the virus outbreak, companies’ operations are deteriorating, and overall economic growth is cooling, so it is unrealistic for banks to maintain their non-performing loan ratios, Ye said.
Additional reporting by Reuters
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