Market sources said on Friday that China's central bank is to establish its own asset management corporation (AMC) to clear up its bad loans.
People's Bank of China (PBOC), China's central bank, has issued reloans worth about 1.8 trillion yuan (US$217 billion) with about 1 trillion yuan (US$121 billion) becoming non-performing.
To avert a financial crisis and maintain the country's financial stability, the reloans were offered to other banks, local governments, and financial institutions.
The central bank offered at least 15 billion yuan of reloans (US$1.81 billion) to some brokers last year to ease small investors' concern of a market crisis.
Analysts say the new AMC will become a partner corp with Central Huijin, a wholly State-owned investment company that focuses solely on equity investment in the nation's major financial institutions with the approval of the State Council.
Central Huijin will be in charge of the central bank's investment projects while the new AMC is to take over the bad loans.
Market insiders said the new AMC has gained approval from the Ministry of Finance, and the China Banking Regulatory Commission. It will soon register in the State Administration For Industry & Commerce.
Once established, the new AMC will become the fifth State-owned AMC.
The poor performance of the four AMCs means the central bank is unlikely to entrust its NPLs to them, said Yi Xianrong, a senior researcher in finance at the Chinese Academy of Social Sciences.
The existing four AMCs -- China Huarong Asset Management Corp, China Great Wall Asset Management Corp, China Orient Asset Management Corp and China Cinda Asset Management Corp -- were founded in 1999 to deal with the 1.4 trillion yuan (US$168 billion) worth of non-performing loans (NPLs) held by the big four State-owned commercial banks.
The four were expected to finish their task within eight years. But six years on they have disposed of 688.6 billion yuan (US$83 billion) worth of NPLs, only about half the total.
And the recovered cash accounts for only about 20 percent of their face value.
The AMCs' inefficiency has aroused many accusations.
Late last month, a report issued by the national auditing department revealed that there were gross irregularities in the business operations of the four major AMCs and a large amount of funds had been misused.
The four AMCs should be restructured to improve their competence, Yi Xianrong said.
Moreover, the expert also pointed out the establishment of a new AMC could act as a warning to the bank loan gainers to pay back their debts.
(China Daily July 16, 2005)
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