Last month Morgan Stanley became the second foreign investment bank to secure a direct bad
loan sale agreement with one of China's leading four state-owned banks. The US bank
will help China Construction Bank sell non-performing loans (NPLS) with a face value of
some Yn4.3bn, In June, Goldman Sachs agreed to sell US$1 .2bn of such loans for the
Industrial and Commercial Bank of China (ICB C).
Prior to these deals, investment
banks were only allowed to bid for the US$l7Obn of NPLs that had been taken on by asset
management companies of the big four banks. Some of these loans were made before
1995, making them difficult to recov-er. China Construction Bank said that it could not wait
for government approval to transfer more NPLs to the asset management companies. The
longer the wait, the more the assets lose value, it said.
The China Banking
Regulatory Commission wants each of the big four banks to cut their NPLs by 3-4 per cent
a year to below IS per cent of total loans by 2005.
Meanwhile, Bloomberg reported
that a proposed joint venture between Goldman Sachs and one of these asset
management companies might be delayed. A spokesman for Great Wall Asset
Management, which sells bad loans for the Agricultural Bank of China, said there were
differences of opin-ion about how to set up the venture. Gold-man Saehs already controls
65 per cent of a venture with Huarong Asset Management Corp to dispose of bad loans
from ICBC .