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China Relaxes Rules on Disposing Bad Loans
Topic Started: 24 Oct 2016, 10:52 PM (833 Views)
Rufus
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China Relaxes Rules on Disposing Bad Loans
Regulator now allows more than one bad-loan management company in every province
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BEIJING—China is loosening restrictions on the way local governments dispose of bad loans, opening new avenues that may speed up disposal but obscure how the country is writing off a surge of souring corporate debt.

New rules from banking regulators aim to help deal with debt that is now nearly three times the size of the economy and that, some analysts say, threatens to derail long-term economic stability. Alarmed by double-digit annual growth in impaired loans among state-owned industries, regulators have rolled out policies to help companies tide over retrenchment and pressure banks to forgive debt by accepting equity.

Under the new rules, provincial governments would be allowed to set up more locally owned bad-loan management companies, and expand the geographic reach of such firms in selling repackaged bad loans.

The new ruling, circulated in a two-page document to local authorities by the China Banking Regulatory Commission over the weekend, revises a 2012 regulation that capped local bad-loan managers to one per province.

The amendment was aimed at increasing “the number of avenues for financial companies to dispose of bad loans, and to develop local-government asset management companies,” the commission said in the document, a copy of which was obtained by The Wall Street Journal.

China’s banks, largely state-owned, generally have to go through asset-management companies to write off bad loans on their books, estimated at the end of the first half this year at around 1.4 trillion yuan ($207 billion). Even the debt-to-equity swaps officially sanctioned earlier this month specify that, unless otherwise permitted, commercial lenders would have to negotiate such deals with debtor companies via bad-loan managers.
Nonperforming loans have become a thriving business over the last 17 years. China set up four nationwide asset-management companies in 1999 to absorb an earlier debt crisis, planning to retire these caretakers within a decade. A fresh round of misdirected state investment over the last seven years renewed their lease of life; bad loans have grown to the extent that the four nationwide giants now have local competition.

Analysts have warned that the proliferation of local bad-loan companies could add a layer of opacity to China’s already murky way of recognizing bad loans. Some private-equity managers have complained in the past about the lack of transparent pricing of seized collateral in bad-loan sales.
The new measures could allow localities greater leeway to shuffle debt around the system without resolving them, potentially allowing a buildup that would eventually rebound on the banking system.

“They cannot hide the nonperforming loans forever,” Bernstein Research analyst Wei Hou said.

In the past year or so, asset-management companies have been buying bad loans from banks at about 20 cents on the dollar and reselling them at as high as 70 or 80 cents.

But bad loans are piling up so fast that analysts say asset managers can’t absorb them fast enough and repackage them before selling, which is hurting their margins. Some have resorted to dumping the duds wholesale—auctioning $8 billion worth in one go—on popular e-commerce websites like Taobao.

As margins come under pressure, profit growth at the four largest asset managers has fallen to around 30% in mid-2016 from around 50% a year earlier.

Setting up more of such managers locally would in theory allow them to mine greater value from an expanding pie of bad loans.

The looser restrictions also allow locally owned bad-loan managers to sell outside their localities, reversing an earlier geographic limitation, according to the document. The banking regulator didn’t immediately respond to a request for comment.

Nationwide asset managers haven’t welcomed the competition. “We might have some misgivings, and would need to explore what’s being said in the document,” an official at one of the four main asset-management firms said.
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Ex BP Golly
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I'd love to be one of the comrades kids getting their hands on this lurk.

What power they shall yield over non performing comrades.

An economic purge to rival the cultural revolution perhaps?
WHAT WOULD EDDIE DO? MAAAATE!
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Rufus
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Ex BP Golly
25 Oct 2016, 01:58 AM
I'd love to be one of the comrades kids getting their hands on this lurk.

What power they shall yield over non performing comrades.

An economic purge to rival the cultural revolution perhaps?
No, it's a signal that China will just write off the bad debts.
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Bardon
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Rufus
25 Oct 2016, 09:14 AM
No, it's a signal that China will just write off the bad debts.
Exactly.

State official as bank manger looks into mirror

We are going to forgive this loan this time, don't let it happen again.

The same state official as business owner looking in the mirror.

Okay.
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Ex BP Golly
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Rufus
25 Oct 2016, 09:14 AM
No, it's a signal that China will just write off the bad debts.
You don't understand how power works in China.

Whoever does this will be the next gang of four.
Bardon
25 Oct 2016, 09:53 AM
Exactly.

State official as bank manger looks into mirror

We are going to forgive this loan this time, don't let it happen again.

The same state official as business owner looking in the mirror.

Okay.

These guys will go through the books, will know the secrets, will know the lies, will know the truths, and most important, for your input to this discussion, will also choose who won't be forgiven their debt.

Have no doubt, in a country as debt ridden as China, this is a powerful new position in government.

Disabuse yourself that a clerk like you (or your boss) will run this show.

Edited by Ex BP Golly, 25 Oct 2016, 10:35 AM.
WHAT WOULD EDDIE DO? MAAAATE!
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NothingToSeeHear
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Rufus
25 Oct 2016, 09:14 AM
No, it's a signal that China will just write off the bad debts.
What would that mean for people's deposits?
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Rufus
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NothingToSeeHear
25 Oct 2016, 07:17 PM
What would that mean for people's deposits?
Probably nothing.
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NothingToSeeHear
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Rufus
25 Oct 2016, 08:21 PM
Probably nothing.
So they don't use double entry accounting in China?
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Rufus
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NothingToSeeHear
25 Oct 2016, 09:54 PM
So they don't use double entry accounting in China?
I'm sure they do.

Do you want to give us the scenario that is concerning you.
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herbie
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Rufus
25 Oct 2016, 09:58 PM
I'm sure they do.
Dunno about China - But assuming can be dodgy maybe mate? - Wif me recollection surely bein' a Russkie Economist told me that 'when she was a gal' they didn't use double entry bookkeeping (tho don't ask me wot they did use) - 'N wif me havin' some vague recollection they maybe started changing over 15 or 20 yrs back or wotever?

But even now, their system's still not 'tha same' as ours it seems? :

http://www.iasplus.com/en/jurisdictions/europe/russia

Wif a couple of extracts from same reading:

"For historical reasons the Russian financial reporting framework has been determined and regulated by the state, rather than being developed by professional bodies. Indeed, the primary users of Russian statutory financial statements based on Russian accounting standards (RAS) are the tax and other state authorities, rather than management or third parties.
Currently, International Financial Reporting Standards (IFRS) are becoming increasingly important, both in terms of influencing the development of RAS and as the compulsory standards for certain types of Russian entities."

"Considerable progress is being made towards converging RAS with IFRS. However significant differences still remain between the Russian standards and IFRS in recognition, measurement and presentation, including:
The fair value concept is not applied in RAS; Non-quoted financial assets are accounted for at cost or amortized cost (less impairment provision); Finance leases may be capitalized or expensed by agreement of the parties to the lease contract; Property, plant and equipment are not impaired, though revaluation to the current replacement cost is allowed; Useful lives of fixed assets are often in line with the useful lives applied for tax purposes. Deferred tax is calculated using the income statement method, although the methodology differs. Revenues or expenditures are often recognized after documentation supporting the transaction is received in accordance with the tax rules.
 Certain complex IFRS topics such as Joint Arrangements, Hedging, Pension Plans, Share-Based Payments, etc. are not covered in RAS. In absence of RAS guidance, entities may chose to apply relevant IFRSs. Consolidation and Business Combinations topics are not relevant to RAS, as it is only applicable to standalone financial statements."

Not that any of that means shit ta me - But just could be vaguely interesting ta those ta whom it does ...

A Professional Demographer to an amateur demographer: "negative natural increase will never outweigh the positive net migration"
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