Study On The Problems Of The Non-performing Loans Of China's State-owned Commercial Banks

The non-performing loan problem of our state-owned commercialbanks are long-standing, the causes of the issue are various, and theirexistence brings huge threaten to the healthy and continuous developmentof our financial industry. So doing deeper research to the causes of thenon-performing loans and finding out the practical solutions have gratesignificance to our present financial system reform and to the harmonious,steady and healthy development of our national economy.Non-performing loans, which are also called non-performing assets ornon-performing creditor's rights, are always a problem relating to thestability of the banking system, especially in resent year, this problembecome a hotspot in the study of our academia. There are severaldefinitions of the non-performing loans. On the basis of the term of loan,we can define them as loans that the borrowers cannot repay in thecontractual terms and will bring losses to the lenders. In the view ofguaranty, we can define them as loans whose guaranties devaluate and thatwill have losses. According to the source of the repayment, we can definedthem as loans that suffer the difficulties of repayment, especially those theborrowers'expected capital sources can not repay the principals andinterests of which, or can not be sufficient to do that. In general, thenon-performing loans mainly refer to loans whose principals and interestscan't be repaid by the borrowers in accordance with the original loanagreements, or those there is evidence to show that.The theories concerns to the reasons for the formation of thenon-performing loans are: (1)The credit theory. As the credit contains thetime-span expectation, and there will be nondeterminacy in it. As a kind ofcredit process, there also is nondeterminacy in financial transactions. In thedebit and credit process, the movements of interest rate, exchange rate andprice will make people's revenues departure from their expecting levels,and bring pecuniary losses to the borrowers. When the losses accumulateto a certain degree, the borrowers would be unable to make repaymentaccording to the loan contract; it directly leads to the appearance ofnon-performing. (2)The theory of internal frangibility of commercialbank. This theory considers that the information asymmetry in financialtransactions and the mandate relationship in financial institutions easilybring adverse selection and moral hazard, which then make the financialinstitutions have internal frangibility and give rise to the non-performingloans.(3)Bank behavior theory. This theory, which consists of the loancustomer-relationship theory and the loan pushing theory, mainly analyzesthe causes of non-performing loans in the view of bank behaviors. The loancustomer-relationship theory was put forward by John H·Wood. Thistheory regards that in order to make their customers have a long-termdemand for loans and achieve their profit maximization target, banks areinclined to foster their customer relationship by increasing loans, which inturn makes the number of loans increase. Gwyne firstly put the loanpushing theory forward. This theory is of opinion that as the outstandingachievements of bank managers relates to the number of loans, in order tomake their performances prominent, they are willing to expand the numberof loans out of the safe scope. The excess loan supply reduces the marginalutilities of the loans, and depresses the capital efficiency, which will affectthe debit paying ability of the borrowers and make the incidence ratehigher. (4)Loan market segmentation theory. The theory think there aretwo separate markets in Chinese loan market, one is in the feature of loanpushing, and the other is in the feature of loan demand inelasticity. In fact,this theory is the practical application of bank behavior theory in China.And it has great referable meaning to analyze the generation ofnon-performing loans in the process of our bank commercialization.The problem of non-performing loans is deep-seated in China. Thematerials show that the ratio of non-performing loans is 20% in ourstate-owned commercial banks and most of it concentrates in state-ownedenterprises. This is a serious threat to our country's financial security andeconomic development. Our government sets about solving the problemfrom 1994,and has mainly adopt some practices such as making tendencytoward universal banking, issuing special treasury bonds to peel off badassets. But it is still a long way to go.The main reason of non-performing loans'formation in our state -owned commercial banks is property rights of enterprises and role locationof government. And the other important reason is the leaks of banks'interior mechanism, such as blurring of property order, capitalimpersonalization, and defect of corporate governance structure. Thereforethe non-performing loans of our banks are divided into two kinds: onebecause of unreasonable policies of government and the other because ofbanks'own bad management.The problem of non-performing loans is not only our country'sdifficulty but also the world's hard question. The western countries mainlytake centralization of non-performing loans, asset securitization,...