It is not a good sign for any economy when debt collectors are booming and in China right now, the industry is on a hiring spree.
Whole Scene Asset Management, a debt recovery firm based in Hunan Province, plans to double staff numbers to 400 people this year as it expands into new cities.
“Debt collection firms have been mushrooming,” company founder Zhang Haiyan said. “With bad loans growing this year, everyone is adding new hands.”
Bricsman, its rival, is also hiring — hoping to boost its headcount of about 1,000 employees by 400 to 500 this year after landing a deal to collect delinquent consumer loans for China Minsheng Banking Corp (中國民生銀行), people with knowledge of the matter said, declining to identified as they were not authorized to talk to media.
Bricsman, which is based in Jiangsu Province and counts other large banks among its clients, did not respond to a request for comment.
As more consumers struggle with lost income in an economy battered by COVID-19 and US-China tensions, a burgeoning wave of nonperforming loans is sparking concern among lenders — both at specialist consumer financing firms and traditional banks — and even among debt collectors.
China is in the middle of “an unfolding debt crisis,” said Joe Zhang, a business consultant and until last month vice chairman at the country’s largest debt collector YX Asset Recovery.
The delinquency rate for consumer debt is climbing and collecting on those loans has become much harder, he added, estimating that at some weaker non-bank consumer lenders, soured loans might account for 30 to 50 percent of their portfolios.
That bodes ill not only for Beijing’s efforts to spur domestic demand, but also for the financial health of consumer lending firms, which help provide credit seen as vital for shoring up the virus-hit economy.
The China Banking and Insurance Regulatory Commission said that delinquency rates were under control when it noted a 0.13 percentage point rise in the nonperforming loan ratio for first-quarter consumer debt compared with the start of this year.
However, that data only captures bank loans and not those extended by the country’s vast numbers of specialist consumer finance firms, including micro lenders.
Even at banks, which generally have stricter loan criteria, concern is building.
An internal review by Bank of Shanghai Co Ltd (上海銀行) saw its nonperforming loan ratio for consumer debt soar in the first quarter, a company source familiar with the matter said.
“We’ve already started to reduce our exposure in consumer finance by cutting our co-lending business with smaller platforms,” said the source, on condition of anonymity.
Chinese consumer debt has ballooned over the past five years, fueled in part as banks scrambled to issue credit cards, with outstanding debt for bank-issued cards doubling to 17.6 trillion yuan (US$2.5 trillion).
Internet-based consumer financing, which is only lightly regulated, has also grown — by a dizzying 400 times to nearly 8 trillion yuan since 2014, the Guanghua School of Management said.
Household debt, including mortgages and unsecured consumer loans, has risen to nearly 60 percent of GDP, up from 18 percent in 2008, during the global financial crisis.
China Merchants Bank (招商銀行), which derives about 55 percent of its business from individual clients, is reviewing an earlier plan to increase that portion of its business to 60 percent, president Tian Huiyu (田慧玉) said in April after its first-quarter earnings.
Shanghai ShangCheng Consumer Finance (上海尚誠消費金融) has lifted its thresholds for new borrowings, while intensifying debt recovery efforts, a company manager said.
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