China Bohai Bank to Sell $3.99 Billion in Non-Performing Loans

China Bohai Bank announced on Monday its intention to sell 29 billion yuan ($3.99 billion) worth of non-performing loans as it faces pressures from a faltering Chinese economy and deepening property sector problems.

Financial Hit and Sale Expectations:

The Tianjin-based bank, which is 16.2% owned by British lender Standard Chartered, anticipates a financial impact of 3.9 billion yuan from the sale and expects at least 17.7 billion yuan from the transaction.

Purpose of the Sale

Bohai Bank aims to remove large soured loans from its balance sheet and has identified six potential buyers. These buyers include:

• Tianjin branches of China’s four major asset management companies (AMCs):
  • China Orient Asset Management
  • China Cinda Asset Management
  • China Great Wall Asset Management
  • China CITIC Financial Asset
• Two local bad loan management firms:
  • Tianjin JR Assets Management
  • Tianjin Binhai Zhengxin Assets Management

Background of AMCs

The four AMCs were established in the late 1990s following the Asian financial crisis to acquire and dispose of non-performing loans from state-owned banks. Over time, they have expanded their operations into broader financial services.

China’s economy grew much slower than expected in the second quarter, with the worsening property market continuing to impact domestic banks. Smaller lenders, like Bohai Bank, are particularly vulnerable due to their higher exposure to less-developed regions and weaker capital positions.

Expert Insight

Christopher Beddor, deputy China research director at Gavekal Dragonomics, noted that the primary causes of worsening asset quality at smaller banks are the property-sector downturn and sluggish economic growth. “Many banks have responded by aggressively disposing of troubled assets to keep their reported non-performing loan ratios low,” said Beddor.

Impact on Foreign Banks

Foreign banks are also feeling the impact of Chinese lenders’ deteriorating businesses. Standard Chartered has taken $850 million in writedoawns in its stake in Bohai Bank in the last few quarters. It has expressed caution about the sector due to declining residential sales volumes.

Financial Performance and Market Reaction

Bohai Bank’s net profit in 2023 was down 17% from the previous year, with a non-performing loan ratio of 1.78%, higher than the industry average of 1.59%. The Hong Kong-listed shares of Bohai Bank rose 1.08% in afternoon trade, while Standard Chartered’s shares grew by 0.9%.

Bohai Bank’s move is part of a broader strategy to manage asset quality and financial stability amid challenging economic conditions.