How should Chinese banks effectively manage, enforce and restructure their non-performing loans?
As the Chinese economy enters the “new normal”, the Chinese government has been adjusting its industrial and credit-related policies and strengthening regulation of Chinese financial institutions. A large number of non-performing loans (NPLs) as well as actual loan defaults have started to surface. The risks associated with rising levels of NPLs require Chinese banks to enhance their ex ante and ex post credit risk management practices. They also need to strategically and effectively navigate complex domestic and cross-border loan recovery, debt restructuring and insolvency processes.Careful planning and effective decision-making is required for banks to manage their NPLs and strategically engage in debt restructuring and insolvency processes. While insufficient cash flow is the main cause of a borrower’s inability to repay its debts, certain other events may also adversely affect the borrower’s overall business and financial condition.