China's Troubled Bank Loans
, by Lou, JianboNote: Supplemental materials are not guaranteed with Rental or Used book purchases.
- ISBN: 9789041198396 | 9041198393
- Cover: Hardcover
- Copyright: 10/1/2001
This book examines the significant and increasing problem of State bank non-performing loans (NPLs) in China, which have undermined the stability of the banking system And The efficient operation of markets. The accumulation of NPLs in China has been caused by the dominant role of State banks in China's financial markets, weak internal controls within State banks, policy loans to state owned enterprises, unnecessary administrative controls on banks' lending activities, and inappropriate banking regulation and supervision. The author draws on experiences at national, regional and international level to make recommendations For The development of better workout procedures for existing NPLs. He also examines the role of banking regulation and supervision in preventing accumulation of NPLs and in avoiding the impact of NPLs on the stability of the banking system And The conditions of market discipline.
Jianbo Lou, LLB/LLM (PKU), PhD (London) is a lecturer in Chinese commercial law at Cambridge University, a lecturer in law at Peking University, and a Fellow at the Centre for Commercial Law Studies, Queen Mary and Westfield College. Dr Lou specialises in Chinese banking law and the non-performing loan problem in particular. He has also been engaged in comparative research in property law between the United States and China, and is the co-author of a book on Chinese real estate law. He has published numerous papers, covering many fields of Chinese commercial law, both in Chinese and English
Preface | p. xix |
List of Abbreviations | p. xxi |
Background | |
Introduction | p. 3 |
Background: The Problem Stated | p. 3 |
Structure of the Book | p. 6 |
Methodologies | p. 11 |
Generalization versus Specialization | p. 11 |
Economic Analysis versus Legal Analysis | p. 11 |
China's Bank Non-performing Loan Problem: Seriousness, Causes and Solution | p. 13 |
Introduction | p. 13 |
The Seriousness of the Bank NPL Problem in China | p. 14 |
The Seriousness: The Large Amount of Existing NPLs and Increasing New NPLs | p. 14 |
Negative Effects of State Bank NPLs | p. 16 |
Summary | p. 21 |
Causes of Bank NPLs--The Theoretical Framework | p. 21 |
Soft Budget Constraints | p. 22 |
Market Discipline--A Mechanism to Curb Soft Credit | p. 24 |
Failure of Market Discipline--the Ultimate Root of the Bank NPL Problem in China | p. 27 |
Causes of Bank NPLs--Empirical Analyses | p. 28 |
The Bank-Centric and State-Bank-Dominated Financial System in China | p. 28 |
Soft Budget Constraints on SOEs in the Form of Policy Loans | p. 33 |
Administrative Controls on State Commercial Banks | p. 39 |
Weak Internal Control Systems Within State Commercial Banks | p. 46 |
Inappropriate Banking Regulation and Supervision | p. 47 |
Summary | p. 48 |
Three Basic Strategies to Deal With the Bank NPL Problem | p. 48 |
Large Scale Bank Closure and Liquidation | p. 49 |
Regulatory Forbearance | p. 51 |
Bank Restructuring | p. 60 |
Summary | p. 63 |
Conclusion | p. 63 |
A Systemic Problem | p. 63 |
A Comprehensive Bank Restructuring is Needed in China | p. 64 |
Non-Performing Loan Workout | |
Bank Recapitalization and AMC Program | p. 69 |
Introduction | p. 69 |
Institutional Framework for Bank Restructuring | p. 69 |
Institutional Framework for Bank Restructuring in the United States and Asian Crisis Countries | p. 70 |
Institutional Framework for Bank Restructuring in China | p. 71 |
Recapitalizing the Big Four | p. 73 |
Justification for Government Recapitalization of the Big Four | p. 74 |
Options for Recapitalization--Theoretical Analyses | p. 76 |
How Should the Big Four be Recapitalized? | p. 79 |
Comments on China's Bank Recapitalization Practices | p. 83 |
The Conflicts Between Recapitalization and Market Discipline | p. 86 |
China's AMC Practices | p. 90 |
Why Asset Management Companies in China? | p. 90 |
China's Use of AMCs | p. 95 |
Characteristics of China's AMCs | p. 97 |
Problems with AMC Practices in China and Recommended Solutions | p. 100 |
Immediate Legal Issues Related to AMC Practices in China | p. 106 |
Summary | p. 108 |
Non-performing Loan Disposal and Debt Restructuring | p. 111 |
Introduction | p. 111 |
Two Management Strategies Towards NPLs and their Implications for China | p. 112 |
Two Management Strategies Towards NPLs | p. 112 |
Choosing the Right Strategy: The Experience of Malaysia and South Korea | p. 113 |
Implications for China | p. 114 |
NPL Disposal | p. 115 |
Selling Collateral Underlying Loans | p. 115 |
Loan Collection | p. 117 |
Selling Off NPLs Directly | p. 118 |
Securitizing NPLs | p. 118 |
The United States RTC's Practice in Quick Disposal of Assets and its Implications for China | p. 124 |
Obstacles to Selling NPLs to Foreign Investors | p. 127 |
Summary | p. 128 |
Enterprise Debt Restructuring | p. 128 |
Debt Restructuring versus Financial Restructuring | p. 128 |
Why Debt Restructuring? | p. 129 |
A Theme for SOE Debt Restructuring--Reducing Their Excessive Debt-Asset Ratio | p. 130 |
The Debt-Equity Swap Scheme | p. 134 |
Problems with Debt Restructuring in China | p. 149 |
A Proper Legal Infrastructure for Debt Disposal and Restructuring | p. 149 |
Creditor Passivity of Banks in China: The Lack of an Efficient Loan Collecting Mechanism in China | p. 150 |
The Lack of Appropriate Arrangements to Facilitate Negotiation Between Creditors and Debtors | p. 157 |
Conclusion | p. 177 |
Non-Performing Loan Prevention | |
Enhancing Prudential Banking Regulation and Supervision | p. 181 |
Introduction | p. 181 |
The Evolution of the PBOC as Bank Regulator and Supervisor in China | p. 182 |
The PBOC Before 1984 | p. 182 |
The PBOC After 1984 | p. 184 |
The PBOC Develops into an Exclusive Banking Regulator and Supervisor | p. 188 |
Enhancing the PBOC's Independence and Autonomy, Restructuring the Organizational Structure of the PBOC and the Division of Financial Supervisory Duties Between the PBOC Headquarters and Branches | p. 190 |
Enhancing the PBOC's Independence and Autonomy | p. 190 |
The PBOC Organizational Structure Restructuring | p. 197 |
The PBOC Regulations on Financial Supervisory Responsibilities | p. 201 |
Summary | p. 203 |
Removing Unnecessary Administration Restrictions on State Commercial Banks | p. 203 |
Indirect Monetary Policy Instruments versus Direct Monetary Policy Instruments | p. 204 |
Credit Guidance versus Credit Plan | p. 204 |
Decontrol of Interest Rates | p. 207 |
Current Banking Regulation and Supervision in China: Compared to the Basle Core Principles for Effective Banking Supervision | p. 212 |
Licensing Process and Approval for Changes in Structure | p. 213 |
Arrangements for Ongoing Banking Supervision | p. 216 |
Sanctioning: Formal Powers of Supervisors | p. 227 |
Summary | p. 230 |
Promoting Bank Internal Control Systems | p. 234 |
Introduction | p. 234 |
The Basle Committee's Framework for Internal Control Systems in Banking Organizations | p. 234 |
Development of Bank Internal Controls in China | p. 235 |
Bank Internal Controls Before the Issuance of PBOC Guidelines for Enhancing Internal Controls in Financial Institutions | p. 235 |
The 1997 PBOC Guidelines for Enhancing Internal Controls of Financial Institutions: In Comparison with the Basle Committee Internal Control Paper | p. 236 |
Problems with Internal Controls of Chinese Commercial Banks | p. 245 |
The Organizational Structure of State Commercial Banks | p. 245 |
The Information Problem | p. 251 |
Prospects | p. 253 |
The Introduction of a New Loan Classification System | p. 253 |
Basle Committee's Sound Practices for Loan Accounting and Disclosure | p. 253 |
The Development of China's Loan Classification and Provisioning System | p. 254 |
Loan Provisioning | p. 267 |
Summary | p. 272 |
Banking Safety Net: Mechanisms for Crisis Management | p. 275 |
Introduction--Designing a Bank Safety Net | p. 275 |
Central Bank's Role as Lender-Of-Last-Resort | p. 276 |
A General Introduction | p. 276 |
Defining the PBOC's LOLR Role | p. 280 |
Introducing A Deposit Insurance System into China | p. 285 |
Why Deposit Insurance? | p. 285 |
Issues to be Considered and Principles to be Followed in Designing China's Deposit Insurance System | p. 291 |
Designing China's Deposit Insurance System | p. 294 |
Timing the Introduction of Deposit Insurance | p. 300 |
Insolvency Resolution | p. 300 |
General Introduction | p. 300 |
Closure and Liquidation (Deposit Payoff) | p. 301 |
Merger or Takeover (Purchase and Assumption) | p. 311 |
Rescue Package or Open Bank Assistance | p. 313 |
Management Takeover (A Variation of Bridge Bank) | p. 315 |
Problems with China's Bank Insolvency Resolution | p. 316 |
Building up a Solid Legal Infrastructure for Insolvency Resolution | p. 319 |
Conclusion | p. 322 |
Concluding Observations | |
Concluding Observations and Recommendations for Restoring Market Discipline in China | p. 327 |
Introduction | p. 327 |
The Failure of Market Discipline--The Ultimate Root of the State Commercial Bank NPL Problem | p. 327 |
The Captive Financial Markets | p. 328 |
The Information Problem | p. 328 |
The Bailout Expectation | p. 329 |
The Lack of Response to Market Signals by Borrowers | p. 329 |
Systematic Banking and SOE Restructuring--Strategies Towards the Bank NPL Problem in China | p. 330 |
The Need for Comprehensive Bank and SOE Restructuring | p. 330 |
Key Steps for Bank and SOE Restructuring in China | p. 331 |
Resolving the Stock of NPL: Bank Recapitalization and NPL Management | p. 331 |
Recapitalization of State Commercial Banks versus Market Discipline | p. 331 |
AMC Practices in China: Can AMC Impose Market Discipline on SOEs? | p. 334 |
NPL Prevention: Developing a Partnership Relationship Between Banking Regulation and Market Discipline | p. 340 |
Why a Partnership Relationship Between Banking Regulation and Market Discipline? | p. 340 |
The Development of Prudential Banking Regulation in China and its Compatibility with Market Discipline | p. 343 |
Designing an Appropriate Banking Safety Net to Enhance Market Discipline and Prudential Regulation in China | p. 345 |
The Overall Consistency Between Bank Safety Nets and Market Discipline | p. 345 |
The Relationship Between Bank Safety Net and Banking Prudential Regulation | p. 348 |
Concluding Remarks | p. 348 |
Selected Bibliography | p. 351 |
Index | p. 405 |
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