China’s Biggest Banks Quicken Pace of Bad-Loan Security Sales

  • Lenders set to sell another $600 million of the securities
  • Efforts come as BIS warns of risk of banking strains

China’s biggest banks are stepping up their sales of securities backed by bad loans.

Industrial & Commercial Bank of China Ltd., China Construction Bank Corp. and China Merchants Bank Co. will sell a total of about 4 billion yuan ($600 million) of the securities from Tuesday through next Monday, according to statements from the lenders over the past week.

That will almost double sales under a trial program that started in May as part of government efforts to tame bad debt threatening to hobble the economy.

The nonperforming loans are bundled up and sold at a discount to their face value. The latest batch of sales will rid lenders of 12.3 billion yuan of bad debt, including 2.99 billion yuan of personal mortgage loans at Construction Bank.

A warning indicator for banking stress published by the Bank for International Settlements rose to a record in China in the first quarter, underscoring the risks from an explosion in credit since the global financial crisis.

Signaling Progress

The lenders have signaled progress in tackling nonperforming credit. ICBC last month reported the first quarterly decline in its bad-loan ratio since 2012 as Chairman Yi Huiman talked of “a race of NPL formation against NPL disposal.”

Bank of Communications Co. said in an exchange filing Monday that it’s actively preparing for bad-loan securitization.

China’s official bad-loan ratio held at 1.75 percent in the second quarter after almost three years of increases. Tools for tackling leverage and the build-up of bad credit include plans for banks to swap loans for equity stakes in companies.

Agricultural Bank of China Ltd., Bank of China Ltd. and Merchants Bank have already sold about 4 billion yuan of NPL-backed securities.

— With assistance by Jun Luo

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