(Yicai) May 30 -- China's consumer finance firms are aggressively offloading non-performing personal loans at steep discounts while concurrently issuing low-interest-rate asset-backed securities to replenish their capital, cut legal and collection costs, and enhance asset quality.

Consumer finance firms were the second-largest sellers of NPLs in the first quarter, according to figures from China Central Depository and Clearing. They listed close to CNY8 billion (USD1.1 billion) of bad loans on the China Credit Assets Registry and Exchange this month, the most so far this year, the data showed. Asking prices are very low, down to just 3 percent of book value in some instances.

Ant Consumer Finance recently listed a CNY600 million (USD83.5 million) non-performing personal loan package (average overdue period 335.8 days) at just CNY72.1 million (USD10 million), or 12 percent of the book value.

When disposing of bad loans, Merchants Union Consumer Finance decided to simply offload them at a discount instead of resorting to lawsuits. None of the 464,693 assets in one of the company’s non-performing personal loan packages up for sale have ever been involved in any litigation.

“Because the costs of litigation and collection often exceeds recovery on non-performing personal loans, some consumer finance firms opt to abandon legal action and recovery efforts altogether,” an industry insider said. “Once a loan becomes delinquent, the associated assets are immediately written off in full, bundled into packages, and swiftly sold at a discount to recoup losses.”

By avoiding the complex, time-consuming collection and litigation processes, during which NPLs tie up resources, this approach reduces costs and accelerates capital turnover, according to Wang Pengbo, chief analyst at Botong Consulting.

Consumer finance firms are also speeding up ABS issuance. As of yesterday, they had sold 15 ABS products this year, totaling CNY7.5 billion (USD 1 billion), with the lowest interest rate below 2 percent, according to CCDC data.

Compared with other financing methods, ABS have cost advantages because they can optimize the liability structure of licensed consumer finance companies, unlock existing assets, improve their asset liquidity, and strengthen risk capital buffers, Wang noted.

“As monetary policy will continue its prudent and accommodative stance this year, consumer-loan ABS rates are likely to stay low, and total issuance is expected to grow further,” said Chen Jie, analyst at Shanghai Brilliance Rating.

Editor: Futura Costaglione