China's consumer debt cleanup stalls as regulators curb debt collectors
Regulators are tightening scrutiny of debt-collection firms, forcing layoffs and slowing the recovery of billions in overdue consumer loans, which threatens banks' efforts to purge bad debt.
China's ambitious scheme to cleanse banks of sour consumer loans is faltering as authorities increase oversight of debt-collection companies, citing concerns over social stability. The heightened scrutiny has led firms to lay off hundreds of workers, curbing collection activity and depressing recovery rates, which in turn is making investors and asset managers hesitant to purchase non-performing loan portfolios. Research firm Gavekal Dragonomics estimates that about 100 million people are delinquent on roughly 2.2 trillion yuan of debt.
Bank data show rising non-performing loan ratios, with Industrial and Commercial Bank of China’s credit-card overdraft NPL ratio climbing to 5.37 percent. While bulk sales of unsecured personal NPLs have helped banks keep headline ratios low, the slowdown in collections threatens the broader effort to clear bad debt from balance sheets and could prolong China’s credit downturn.
Why it matters
The slowdown hampers China's effort to reduce household debt risk and could weigh on its banking sector and broader economy.
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