Retail loans lead asset clean-up

Chinese banks are accelerating the disposal of nonperforming assets in the current quarter, stepping up bulk transfers of distressed retail loans and issuing asset-backed securities (ABS) to tidy up their balance sheets, free up capital and create room for fresh lending.

The push comes as banks seek to improve asset turnover and sustain credit support for the real economy amid mounting bottom-line pressure.

Retail nonperforming loans have become the primary target of this round of disposals. Many bank branches have put personal NPL portfolios up for bulk sale, with the underlying assets consisting mainly of personal consumer loans and business loans to individual borrowers.

On Nov 6, Industrial and Commercial Bank of China's regional branch in the Guangxi Zhuang autonomous region issued transfer notices for its first and second batches of nonperforming personal loans in 2026, with a combined outstanding principal and interest balance of 21.67 million yuan ($3.24 million).

On the same day, China Construction Bank's provincial branches in Hebei and Henan provinces issued transfer notices for two batches of nonperforming personal loans, bringing the combined outstanding principal and interest balance to 133.77 million yuan. The underlying assets included personal consumer and business loans to individual borrowers.

Wang Pengbo, chief analyst at market consultancy Botong Analysys, said that by disposing of NPAs in bulk, banks can reduce their NPL ratios, smooth provisioning requirements and free up capital, thus creating additional capacity for new lending.

Wang said that as the pilot program for bulk transfers of personal NPLs matures, transaction thresholds and overall disposal costs have continued to decline. Combined with mounting profitability pressures from shrinking net interest margins, these developments have further strengthened lenders' incentives to revitalize existing distressed assets and accelerate asset turnover, Wang said.

A recent report by KPMG said that bulk transfers of personal NPLs enable the direct transfer of creditor rights, along with the associated risks and returns. They allow financial institutions to expunge large volumes of distressed assets from their balance sheets within a relatively short period, directly reducing both outstanding NPL balances and NPL ratios.

With relatively transparent transaction processes and the ability to attract competing investors through public markets, this approach has gradually become an important tool for financial institutions seeking to dispose of personal NPLs on a large scale, the report said.

In addition to bulk transfers, banks are also turning to NPL ABS as another disposal channel. Under this approach, banks pool loans that have been classified as nonperforming, transfer them to a special purpose vehicle and issue securities backed by the assets. Investors are repaid with proceeds recovered through subsequent debt collection.

On Nov 3, Bank of China and Industrial Bank announced that they had each completed book-building for an issuance of NPL ABS, with total offerings of 700 million yuan and 237 million yuan, respectively.

Since the beginning of the year, similar NPL ABS projects have also been conducted by CCB, Agricultural Bank of China, ICBC, Bank of Communications, Postal Savings Bank of China and Ping An Bank, among other entities.

According to listing announcements published by China Central Depository and Clearing Co, the total outstanding principal and interest of NPLs transferred in the first three quarters reached approximately 341 billion yuan, with the volume increasing quarter-by-quarter. Joint-stock commercial banks transferred approximately 126.3 billion yuan during the period, accounting for 37 percent of the total.

Meanwhile, financial institutions have also stepped up efforts to write off bad loans. Data from the People's Bank of China — the country's central bank — show that financial institutions wrote off 1.27 trillion yuan in loans in the first three quarters, up 23.3 percent year-on-year. Write-offs in the third quarter alone reached 464.6 billion yuan, representing a year-on-year increase of 34.5 percent.

In a report released on Nov 2, China International Capital Corp said banks' third-quarter results pointed to an acceleration in NPA disposal activity. Overall asset quality remained stable, with the average NPL ratio of A-share listed lenders standing at 1.22 percent at the end of the third quarter, unchanged from the end of the second quarter.

A-share listed banks' loan loss provisions increased 20.1 percent year-on-year in the first three quarters, 2.3 percentage points higher than in the first half. Nationwide joint-stock commercial banks and regional banks, in particular, significantly increased impairment provisions for key areas such as retail lending and real estate, the CICC report said.

jiangxueqing@chinadaily.com.cn