On The Non-performing Loans Of State-owned Commercial Banks To Resolve

The banking industry all over the world is facing the serious non-performing loans(NPL), so are China's banks. Chinese state-owned commercial banks (SOBs) play a key role in the national economy, but non-performing loans is badgering the government and the management. There are many causes of the SOBs' non-performing loans. One cause is in part of the deficit of the State-owned enterprises (SOE). The monetary economy is based on the real economy, while the latter reflects the monetary economy. It is the SOEs' loss that results in the non-performing loans. The second one is partly the softness of the SOBs' self-discipline. They act as the tools of the government and undertake the policy-determined loans. For example, they extend a large amount of loans to the SOEs to pay workers. The third is the monetary policy. The interest rate did not play its part in the selection of the projects that need the banks' loan. A lot of the low-profit and high-risk projects have attained most of the loans, while some high-profit but low-risk ones could not gain enough loans. The fourth cause is the deterioration of the enforcement of the law. Many SOEs have taken advantage of bankruptcy to dull the debt.Since the Guangdong International Trusts & investments Co. and the Hainan Development Bank were closed down, non-performing loan problem became the focus of the savers and investors at home and aboard. For it is related to the safety of our monetary system and the further economy growth, it is urgent for the SOBs to solve the non-performing loan problem. Some foreign countries succeeded in coping with the bank crises resulting from the non-performing loans. They established the asset management corporations(AMC) to take over the non-performing loans and deal with it through the capital markets. The measures taken by the United States to solve the Federal Savings and Loans association crisis are mostly appreciated, from which we can learn something.Nowadays, on the part of the SOBs, there is only one way to write off the bad loans. That is the bad loan writing off policy. However, before writing off the bad loans, the banks must withdraw the reserves against bad loans in accordance with the inherit loss of loan. It was not until 1993 that the SOBs began to withdraw reserves. Due to the unscientific loan classification and the low ratio of reserve to loan, the reserves are insufficient. There are some drawbacks in the bad loan writing off policy: The scope in which the bad loans are written off is too narrow and if you want to write off bad loans, you must present many documents. There are many limits for SOBs to write off bad loans. To solve such a complicated problem is a systematic engineering, which will involve the bank industry, the SOBs and the governments at all levels. There are two ways to achieve the goal: one is the SOBs themselves. For example, the SOBs improve their management and increase their profits and bad-loan reserves so that the SOBs can write off more bad loans；and they can provide a type of loan for some SOEs to help them resume the profit. The other is the AMC which take in most of the non-performing loans and treat them through the capital market. The AMC is a transitional institution, which must operate independently, take up responsibilities for all risks it may encounter and for its own profits and losses it may bear, and exercise self-regulating mechanism. Between the SOBs and the AMC the non-performing loans can be transferred in three types of price: market value, discount price and historical cost value). In view of the extinct conditions, the price should be decided by evaluating the value of the loan and bargaining between them. There are three methods which are popular: debt to stock method, selling the non-performing loans and capital securization.