Hidden Non-Performing Loans in China

75 Pages Posted: 12 Feb 2021 Last revised: 10 Nov 2021

See all articles by Ben Charoenwong

Ben Charoenwong

National University of Singapore - Department of Finance

Meng Miao

Renmin University of China - Hanqing Institute

Tianyue Ruan

National University of Singapore (NUS) - Department of Finance

Date Written: November 8, 2021

Abstract

We study non-performing loan (NPL) resolution using proprietary data on NPL transactions in China. Rather than representing orderly NPL resolution, the transactions appear to reflect banks concealing non-performing assets from regulators as (i) transaction prices do not reflect underlying credit risks; (ii) banks fund the NPL transactions and remain responsible for debt collection, and (iii) after two years, over 95% of NPL packages are re-sold at a profit to bank borrowers who do not appear to be NPL resolution specialists. Our findings suggest banks remain at least partially exposed to the NPLs that were removed from their balance sheets.

Keywords: banking regulation, regulatory arbitrage, financial stability, Chinese economy

JEL Classification: G21, G23, G28, G18, G38

Suggested Citation

Charoenwong, Ben and Miao, Meng and Ruan, Tianyue, Hidden Non-Performing Loans in China (November 8, 2021). Available at SSRN: https://ssrn.com/abstract=3662344 or http://dx.doi.org/10.2139/ssrn.3662344

Ben Charoenwong (Contact Author)

National University of Singapore - Department of Finance ( email )

Mochtar Riady Building
15 Kent Ridge Drive
Singapore, 119245
Singapore

HOME PAGE: http://bizfaculty.nus.edu/faculty-profiles/519-ben

Meng Miao

Renmin University of China - Hanqing Institute ( email )

59 Zhongguancun Street
Beijing, 100872
China

Tianyue Ruan

National University of Singapore (NUS) - Department of Finance ( email )

Mochtar Riady Building
15 Kent Ridge Drive
Singapore, 119245
Singapore

HOME PAGE: http://https://truan.github.io/

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