In December last year, Zhang Yang acquired a "personal non-performing loan asset package" from a commercial bank for 4 million yuan. After obtaining the creditor's rights, Zhang Yang became the new creditor of these assets.
Starting from April this year, Zhang Yang and his team began to dispose of these personal non-performing assets. By September this year, after several months of effort, they have successfully recovered 25% of the purchase principal. Zhang Yang said that if the subsequent disposal process goes smoothly, it is expected to obtain a return as high as twice the investment.
In Zhang Yang's view, for a period of time in the future, personal loan non-performing assets can become a potential investment option due to their unique investment characteristics. "The industry as a whole is still a future-oriented industry, worth spending energy to understand and allocate some resources," he believes.
Advertisement
In fact, Zhang Yang's bet is not an isolated case. Since the pilot work of batch transfer of personal non-performing loan assets started in 2021, the market of personal non-performing loan assets has gradually entered the public's view. More and more investment institutions and individual investors have flocked to this field, trying to "go against the trend" to seek gold.
What is the hidden market behind personal loan non-performing assets? Is it a good business worth investing in?
Policy opens the floodgates, batch transfer of personal non-performing loans enters the fast lane
In the process of the continuous development of the financial market, the scale of personal credit business has been expanding day by day, including personal housing mortgage loans, personal consumer loans, personal business loans, and credit card overdrafts. However, due to various reasons, some personal loans have become non-performing assets.
In the past two years, the number and amount of batch transfers of personal non-performing loans have increased, and the market activity has been continuously improving.
The "2024 Second Quarter Non-Performing Loan Transfer Pilot Business Statistics" (hereinafter referred to as "Statistics") released by the Banking Credit Asset Registration and Transfer Center (hereinafter referred to as "Yin Deng Center") in July shows that in the first half of this year, the transaction scale of non-performing loan transfer pilot business was 50.44 billion yuan, a year-on-year increase of 145.69%. Among them, the transaction scale of batch transfer of personal non-performing loans was 32.15 billion yuan, a year-on-year increase of 127.5%. In the second quarter, there were 107 listings for batch transfer of personal non-performing loans, and the transaction scale of the business was 27.85 billion yuan, respectively, a quarter-on-quarter increase of 282.14% and 547.67%.
According to the "2024 First Quarter Payment System Operation Overall Situation" released by the central bank, as of the end of the first quarter, the total amount of overdue credit card loans for more than half a year was 109.676 billion yuan, a quarter-on-quarter increase of 11.76%, accounting for 1.29% of the credit card payable credit balance. In addition to the personal non-performing loans of the banking industry, if the personal non-performing loans of other non-bank institutions such as licensed consumer finance companies, auto finance companies, trusts, and small loan companies in recent years are also taken into account, the scale of the entire personal non-performing loan market is not small.The mass transfer of non-performing loans (NPLs) can accelerate, thanks to the policy "opening of the floodgates."
This year marks the fourth year of the pilot program for the transfer of non-performing loans. The China Banking and Insurance Regulatory Commission (CBIRC) initiated a pilot program for the transfer of single-household corporate non-performing loans and mass individual non-performing loans in January 2021. In December 2022, the second batch of non-performing loan transfer pilot work was launched, expanding the scope of pilot institutions.
In January 2023, the Central Registration Depository (CRD) issued the "Regulations on Non-Performing Loan Transfer Business of the Banking Credit Asset Registration and Transfer Center," ushering in a market-oriented development era for the transfer of individual non-performing loans.
The latest statistics from the CRD show that the number of institutions opening accounts for non-performing loan transfer business has expanded to 958, including various types of institutions such as banks, consumer finance companies, auto finance companies, financial leasing companies, trusts, and financial asset management companies.
With the increase in pilot institutions, many rural small and medium banks have also joined the ranks of transferring individual non-performing loan asset packages. This year, several banks and credit cooperatives, including Beijing Rural Commercial Bank, Gansu Jingyuan Rural Commercial Bank, Guangzhou Rural Commercial Bank, and Baiyin City Baiyin District Rural Credit Cooperative Union, have listed the transfer of non-performing assets.
At the same time, consumer finance companies are also accelerating their entry into the market. Data shows that as of September 25th, 13 consumer finance companies have listed 107 batches of individual non-performing loan asset packages for transfer at the CRD this year, with the total number of assets exceeding 2 million.
Who is buying individual non-performing loan asset packages?
For financial institutions, the market-oriented transfer of individual non-performing loan asset packages has become an important way to resolve the rise in non-performing assets. The acquirers view the individual non-performing loan market as a high-growth, low-competition "blue ocean market."
So, who is buying individual non-performing loan asset packages?
For reference, in the second quarter of this year, local asset management companies have become the main recipients of individual non-performing loan transfers, accounting for as much as 93% of the total. In terms of the number of acquisitions, Liaoning Fu'an Financial Asset Management Co., Ltd. has currently announced 131 batches of individual non-performing loan asset packages, followed by Tianjin Binhai Zhengxin Asset Management Co., Ltd. with 40 batches, Ningxia Financial Asset Management Co., Ltd. with 7 batches, and Haida Asset Management Co., Ltd. with 7 batches, among others.So, is the business of non-performing personal loans a good one?
In Zhang Yang's view, personal non-performing loan assets have various investment advantages, such as diversified underlying assets, genuine and legal claims, diverse disposal methods, and a reasonable market structure.
"The underlying assets of personal non-performing loan assets are dispersed, with debt amounts supported by credit cards usually being relatively small, such as 20,000 to 30,000 yuan, while banks may have larger amounts of over 50,000 to 100,000 yuan. Compared to corporate non-performing assets, the risk is relatively dispersed, and recovering part of the principal can reduce the risk," Zhang Yang frankly told the reporter. The ownership of personal loan claims is clear, and personal loan debts are of unlimited liability; theoretically, borrowers need to repay for life, and the claims themselves are bank debts, with no asset defects.
Zhang Yang said that in recent years, the disposal methods of personal non-performing loan assets have gradually diversified, including telephone collection, litigation, mediation, preservation, and online arbitration, etc., gradually recovering through dispersed assets, and the risk is relatively controllable.
"Moreover, the transaction of asset packages is through open market bidding, unlike corporate non-performing assets that require negotiation with banks, making the purchase process more transparent and compliant," he added.
Whether personal non-performing loans can make money, asset quality and price are the two key factors that determine profitability. Zhang Yang introduced that the recovery difficulty and value of different types of assets vary greatly. Loans with collateral are relatively easier to dispose of, while credit-based personal non-performing loans often have relatively greater difficulty in disposal due to the lack of debt repayment collateral.
From the existing market transaction situation, credit-based personal non-performing loan asset packages are often sold at a lower discount. In 2023, the average principal discount rate of asset packages across the market at the Silver Registration Center was 9.24%, and the average interest discount rate was 6.60%.
It should be noted that the difficulty in disposing of personal non-performing loans lies in the disposal capability.
In Zhang Yang's view, banks sell asset packages mainly because they are constrained by internal management systems and efficiency issues, and methods such as telephone collection and write-off cannot meet the growing demand for non-performing asset disposal. After investment institutions obtain asset packages, they can improve recovery efficiency through diversified solutions, such as increasing the intensity of legal collection,分散诉讼, and pre-litigation preservation, thereby earning the difference.
From the trend, with the expansion of the supply and demand sides of non-performing assets, the pilot of non-performing loan transfers is expected to continue to expand.On August 23rd this year, in response to the 8632nd proposal of the Second Session of the 14th National People's Congress, the National Financial Regulatory Administration mentioned that in terms of expanding the pilot scope of non-performing loan transfers, it will work with the Ministry of Finance to comprehensively consider factors such as the pilot situation of non-performing loan transfers, the business development of related enterprises, high-risk institutions, and the demand for non-performing loan transfer and disposal. It will study and introduce relevant systems to expand the pilot scope or promote the normalization of pilot policies, helping banking financial institutions to continuously expand channels and methods for disposing of non-performing assets.