(Yicai) Nov. 10 -- More and more Chinese banks now prefer selling directly the collateral assets they obtained after their clients failed to repay loans to avoid turning to the sluggish judicial auction market.

Agricultural Bank of China, Bank of Communications, China Construction Bank, and many other commercial banks have put properties for sale, with some having listed more than 1,000 units, Yicai calculated from incomplete statistics.

When borrowers cannot repay their loans, banks go through a litigation process and a court ruling to get approval to start the disposal process. Then, the borrower usually lists the collateral assets on a judicial platform and uses the proceeds of the sale to pay back the bank. Through the direct sales process, the bank acquires ownership of the collateral assets and lists them on auction platforms itself.

Unlike properties sold at judicial auctions with potential dispute risks, those sold by banks are more attractive because they have clear property rights, according to industry insiders.

Alibaba Group Holding’s auction platform has a ‘Bank Clearance’ column, with thousands of listings. For example, Qiqihar Rural Commercial Bank alone has posted 108 residential, commercial, office, and other properties for sale at prices from CNY100,000 to CNY8 million (USD14,050 to USD1.1 million).

This practice is particularly used by regional and rural commercial banks. For example, on JD.Com’s auction platform, Bank of Lanzhou has listed 1,779 houses for sale, Bank of Jilin more than 2,000, and Bank of Tianjin nearly 1,300.

Sichuan Rural Credit System has sold over 25,000 homes, and the Liaoning Rural Credit System has sold 11,000 others on various auction platforms, including those of Alibaba and JD.Com.

Most properties listed by banks on auction platforms are on sale to dispose of non-performing loans, the head of a branch of a joint-stock bank told Yicai. The former corporate or individual owners of these properties used them as collateral when applying for loans.

Once the owners are unable to repay their loans, the collateral assets enter into play. But as many of them are unlikely to be sold in the sluggish judicial auction market, banks agree to take charge of the properties to sell them directly, the head noted. “This disposal model is not new, but its scale has increased recently.”

The prices of properties sold by banks are much lower than those of second-hand properties sold at judicial auctions. For example, a house auctioned by Lanzhou Rural Commercial Bank at the end of September was sold for CNY1.5 million, much cheaper than similar properties in the same community, which are priced at CNY1.8 million to CNY2.2 million.

It usually takes more than two years for banks to dispose of NPLs via traditional approaches, and even longer in the current market environment, a manager at a rural commercial bank told Yicai. Selling properties directly can accelerate the recovery of funds, they added.

Banks have to sell these properties at a price lower than the average in the surroundings because they are in a hurry, as they need to complete the disposal of NPLs within a prescribed period, the head of the joint-stock bank branch explained, adding that lenders will even lower their initial offers if they fail to find a buyer.

Editors: Tang Shihua, Futura Costaglione