(Yicai Global) Aug. 5 -- Since the launch of a bulk personal dud loans transfer trial in China in March, 446 financial institutions have opened transaction accounts in an attempt to reinvigorate non-performing assets and ease pressure on banks over the deterioration in their asset quality.

Of them, 305 were banks and branches, 100 asset management firms and branches, 38 local asset management firms, and three financial asset investment companies as of the end of last month, Yicai Global found after scouring the latest data from the China Credit Assets Registry & Exchange.

The country’s six state-owned lenders as well as the head offices and branches of 11 out of 12 joint-stock banks had opened accounts. Huaxia Bank was the only holdout.

A branch of a joint-stock bank has just submitted an application for personal non-performing loan transfers, mainly consumer credit, and the transfer will be done through online public bidding, a person from the branch’s special assets management department told Yicai Global.

Assets management firms as asset transferees are also actively involved. Major companies such as China Huarong Asset Management, China Orient Asset Management, China Great Wall Asset Management, China Cinda Asset Management, and China Galaxy Asset Management as well as their 95 branches have opened accounts, according to the data.

“More institutions are likely to participate in the future,” the person said, noting banks are under great pressure to deal with dud assets this year and the move can help them remove personal NPLs from their balance sheets and raise their efficiency in tackling non-performing assets.

Pricing Issue

But despite more participants, the general consensus in the industry is that there are still difficulties in pricing the bulk transfer of these bad loans.

Xiao Wang, from the risk management department of Huishang Bank, told Yicai Global that there are no mature precedents to refer to when it comes to pricing personal NPL bulk transfers because the exchanges were previously prohibited.

“More participants have joined the move but they are still exploring it, and unified standards haven’t been made for pricing of target assets,” the source at the joint-stock bank noted.

Non-performing personal credit loans are big, decentralized, unpredictable, and have unstable cash flow, which makes their pricing difficult.

“The Shenzhen Special Economic Zone is experimenting with the personal bankruptcy mechanism,” Xiao said. “Some debtors are likely to be exempt from compensation liability after their personal bankruptcy is approved if the mechanism is implemented nationwide, which certainly will reduce the predictability and stability of personal NPLs’ cash flow.”

A Seller’s Market

Banks must consider preventing the loss of state-owned assets when pricing assets, and if the prices are too high it will deter buyers, Xiao said.

The NPL market is mostly a seller’s market, and so is that for personal NPLs, an industry insider told Yicai Global. For example, the price of the first batch was 20 percent to 50 percent off their asset principal, he said.

“The discount in the recovery price of non-performing personal pure credit loans is usually between 10 percent to 30 percent,” according to an official at a local asset manager that buys non-performing assets. The first batch’s price was a little too high but still fair, he added.

Ping An Bank sold a non-performing personal business credit loan at a 10 percent discount on June 15, indicating that to a certain extent market pricing is gradually becoming rational as the number of participants increases, the person added.

Editors: Tang Shihua, Peter Thomas