This is an interesting article from Reuters. China is developing a new trading platform to enable banks to sell off loans to a wider range of investors. At present banks have two choices for disposing of non-performing loans, sell “in private deals, mostly with big state-backed asset management firms, or keep rolling them over indefinitely to avoid booking a loss”. Hardly appealing.
But the China Banking Regulatory Commission (CBRC) is working to introduce a system to allow for price discovery for loan transfers thereby increasing transparency in pricing, and so making it more attractive to potential investors.
Most analysts believe Beijing will eventually be forced to use some public funds to help peel off bad loans from state banks, but the ability to draw in at least some private capital could reduce the cost of that bailout.
The idea is mainly for banks to be able to shed non-performing assets from their balance sheets and free them up to support the economy with fresh credit.
She also quotes one analyst as saying that if the initiative is successful it could pave the way for a significant boost to Chinese asset valuations as well as significantly revive Chinese commodity purchases.