China’s bad consumer debt cleanup falters, spooking investors
As many as 100 million people are behind on payments of at least 2.2 trillion yuan (US$327 billion)
China's ambitious campaign to eliminate banks' inventory of bad consumer loans faces obstacles as authorities scrutinize debt collectors involved in the cleanup. The nation's banks have been selling defaulted consumer loans at a fraction of their value to specialized firms tasked with collecting the debt. These entities work with debt collectors across the country to recover as much money as possible.
The state-led initiative originated from a pilot program in 2021 and has since expanded, involving numerous financial institutions. However, challenges are arising. Chinese public security authorities are closely examining debt collection companies and their methods, fearing their efforts could destabilize social order. This crackdown has resulted in some debt resolution firms downsizing or shutting down, which has slowed collection efforts and reduced loan recovery rates.
Consequently, investors and asset managers are becoming more cautious about purchasing portfolios of non-performing loans, potentially causing financial difficulties for banks striving to eliminate more bad debt from their balance sheets.
Written by urgent.news from The Business Times - Companies & Markets's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
