Dealing with the Bad Loans of the Chinese Banks

Posted: 10 Jul 2002

See all articles by John Bonin

John Bonin

Wesleyan University - Economics Department

Yiping Huang

Peking University, National School of Development

Multiple version iconThere are 2 versions of this paper

Abstract

Chinese banks suffer from serious financial fragility manifested by high proportions of non-performing loans and low capital-adequacy ratios. A key policy introduced recently by the Chinese government to reduce financial risks is the establishment of four asset management companies (AMCs) for dealing with bad loans. Drawing on the experiences of the Resolution Trust Corporation in the United States and bank restructuring in the Central European transition economies, we argue that the original AMC design will not be successful in resolving the existing non-performing loans (NPLs) nor will it prevent the creation of new bad loans. We recommend a modification of the current proposal that redefines the relationships between the parent banks and the AMCs by transferring the deposits of problem enterprises along with their NPLs from parent banks to AMCs.

Keywords: Bad loans, State-owned banks, Asset Management Companies, China

JEL Classification: G21, P34

Suggested Citation

Bonin, John P. and Huang, Yiping, Dealing with the Bad Loans of the Chinese Banks. Available at SSRN: https://ssrn.com/abstract=318752

John P. Bonin (Contact Author)

Wesleyan University - Economics Department ( email )

Middletown, CT 06459
United States
203-685-2000 (Phone)

Yiping Huang

Peking University, National School of Development ( email )

No. 38 Xueyuan Road
Haidian District
Beijing, Beijing 100871
China

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
1,497
PlumX Metrics