China's Troubled Bank Loans

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ISBN: 9789041198396 | 9041198393
Cover: Hardcover
Copyright: 10/1/2001

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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.

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
Table of Contents provided by Syndetics. All Rights Reserved.

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China's Troubled Bank Loans

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