On The Financial Assets Management Companies Legal Problems And Countermeasures In Handling Bad Assets

After the Southeast Asian financial crisis,a great of concerns are led to the Non-Performing Assets(NPAs) of financial institutions.Due to the operating system and external environment reasons,China's four major state-owned commercial banks accumulated enormous NPAs.As the number of NPAs added more and more,making contradictions become increasingly prominent,it has affected the running safety of China's financial system.Therefore,the State Council issued the "Financial Asset Management Companies Ordinance" in 1999,stripping and restructuring bad assets of state-owned commercial banks.To alleviate burdens for the four state-owned banks,China set up four Asset Management Companies (AMC).They are China Cinda Asset Management Corporation,China Great Wall Asset Management Corporation,China Huarong Asset Management Corporation and China Orient Asset Management Corporation.The four companies have taken over the NPAs stripped from the four major state-owned banks,effectively reducing NPAs rate of loan for state-owned commercial banks,easing the risks of financial industry, and enhancing our financial enterprises more competitive in a global market.However,as there's a large blank area in the legal system concerning AMC,AMCs have not yet formed a favorable internal management system and not created a high efficiency in disposal of bad assets due to their barren means,which consequently affecting the effect of disposal.The inappropriate handling of disposing NPAs would bring significant risks,mainly legal risk,market risk,operation risk and moral hazard risk.Therefore,to avoid risks is one of the major targets for the AMC to dispose NPAs.Existing academic works have certain touch on the AMC's disposal of NPAs,but most of them are placed on legal issues barely in the disposal links,hardly talking about NPAs while combined with risks prevent.Based on the angle of avoiding risks,the writer attempts to explore further on legal issues happened among AMC's disposal of NPAs,and bring forward corresponding countermeasures. Firstly,this paper describes the status of AMC's disposal of NPAs, as well as the risks which might occur during the course.Secondly,with a perspective in both macro and micro views,the writer made a research on legal issues on it and related risks.Lastly,based upon the status that China's in lack of certain legislation,the writer puts forward relative proposals.Except of the introduction and conclusion,there are 4 sections in the text.The first chapter mainly discusses the status of AMC's disposal,the causes how NPAs come from and why China made AMCs deal with bad assets.The second part expounds the risks that probably emerge on the disposal.They are legal risk,market risk,operational risk and moral hazard risk.In the third section,the author made an analysis of the legal issues concerning the disposal of bad assets,and then expatiates on the legal issues and risks that might occur in the every link of the disposal.The analysis starts from the legal status of the AMC,and goes through the three links in sequence-taking-over,managing and disposing of NPAs.The major issue of taking-over NPAs is the pricing,which might bring moral hazard.In the managing link,the key issue is the establishment of an incentive and restraint system inside AMCs.The problem of disposing comes at the means of handling bad assets and the practices in judicature.Ground on the inadequacy of existing legislation,the fourth part put forward the counterplan of law problem which existed in the NPAs.