Lenders dialing up transfers of nonperforming personal loans

Small and medium-sized banks in China are accelerating the offloading of nonperforming personal loans as narrowing net interest margins and mounting operating pressures push lenders to clean up their retail loan portfolios, free up capital and strengthen asset quality.

The shift toward bulk transfers to licensed asset management companies marks a broader move from reactive loss management to proactive risk resolution, creating more room for banks to support new lending and pursue long-term business restructuring, industry experts said.

Since the beginning of this year, a growing number of small and medium-sized banks have been listing portfolios of nonperforming personal loans for transfer on Banking Credit Asset Registration and Circulation Center Co, stepping up efforts to resolve risks associated with their retail lending portfolios.

Dong Ximiao, chief economist at Merchants Union Consumer Finance and executive director of the Shanghai Institution for Finance and Development, said commercial banks are moving away from a reactive approach to nonperforming asset disposal toward a more proactive resolution, reflecting a broader shift in risk management from absorbing losses after they occur to actively managing the value of distressed assets.

"The shift is both a pragmatic choice for the banking sector to cope with immediate pressures and an inevitable path toward high-quality development," Dong said.

He said that ongoing economic restructuring and narrowing net interest margins have intensified operating pressures on banks, prompting them to seek external channels for disposing of nonperforming assets. Banks urgently need to free tied-up capital through loan transfers and improve asset quality indicators, thereby creating room to support new lending.

On Sept 7, Bank of Hangzhou listed its first nonperforming personal consumer loan portfolio transfer package of the year on Banking Credit Asset Registration and Circulation Center Co. The portfolio comprised 57,670 unsecured overdue loans associated with 11,841 individual borrowers. The total outstanding principal and interest amounted to 740 million yuan ($110.77 million).

Following Bank of Hangzhou, Bank of Suzhou listed its first nonperforming personal consumer loan portfolio of the year on Sept 17. The portfolio had total outstanding principal and interest of 280 million yuan and included 22,293 overdue loans covering 3,793 individual borrowers. The weighted average age of borrowers was 39.36, and most were young and middle-aged consumers or business operators. These groups were also among the core customer segments previously targeted by banks as they expanded retail lending to lower-tier markets and underserved customer groups.

On Sept 20, Bank of Jiangsu listed its sixth nonperforming personal loan transfer project of 2026 on the center. The portfolio primarily consisted of nonperforming personal business loans, with total outstanding principal and interest of 146 million yuan. It covered 605 loans involving 252 business borrowers. The weighted average number of days past due exceeded 757, while the weighted average age of borrowers reached 50.25, highlighting a pattern of debt delinquency among middle-aged and elderly micro and small business operators.

Banking analysts said the concentration of bulk transfers of nonperforming personal loans by small and medium-sized banks represents a strategic business adjustment made in response to the policy window, regulatory priorities and prevailing market risks.

In December, the National Financial Regulatory Administration issued a notice extending the pilot program for the transfer of NPLs to Dec 31, 2026. The extension gave financial institutions sufficient time to dispose of their existing nonperforming assets.

Building on this policy, Banking Credit Asset Registration and Circulation Center Co issued a notice in January announcing that, effective Jan 1, listing service fees for NPL transfers would continue to be waived temporarily, while transaction service fees would be discounted by 20 percent.

To capitalize on these policy benefits and reduce disposal costs, most small and medium-sized banks have opted to accelerate the divestment of existing nonperforming assets during this window of opportunity.

Meanwhile, financial regulators have shifted their expectations for risk mitigation at small and medium-sized banks away from the emergency-driven interventions of the past toward routine, long-term risk management.

Regulators continue to urge financial institutions to adhere to the principle of "early identification, early disclosure and early resolution" in risk management, compelling banks to accelerate the disposal of nonperforming assets.

Fu Yifu, a researcher at Jiangsu Su Merchants Bank, said although bulk transfers of nonperforming assets involve selling them at a discount and may erode banks' current-period profits in the short term, the release of risk capital and reduction in provisioning expenses can, over the medium to long term, help banks restore their profitability.

Fu added that accelerating the resolution of nonperforming assets improves asset quality and strengthens market confidence in the safety of banks' valuations. It is therefore an inevitable choice for banks seeking to advance toward more refined risk management.