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A Comprehensive Approach toward the Disposal of Non-performing Loans and Structure Adjustment (No.10, 2016)


By Zhuo Xian, Department of Development Strategy and Regional Economy, DRC

Research Report No 10, 2016 (Total NO 4893) 2016-2-3

Abstract: Recently, the balance of non-performing loansof China’s commercial banks has increased to that amount of 2005.Rebound of non-performing loans has cyclical factors, and excessive low non-performing loan ratio in previous years has led to weak finance-based supportto economic transformation, and planted hidden perils for future bank credits. At the same time, the problem of non-performing loans of commercial banks reflects the distorted incentive mechanism, high debt leverage, high proportion of mid-to-long-term loans with high volatility and other structural factors. At present, the tangible risks of non-performing loans arestill under controlwhereasthe major risk is that the decreased effective credits will lead to a decline of economic growth. If an adequate mechanism for the disposal of non-performing loans is not fleshed out, enterprises, banks and local governments would all try to keep their money-losing projects through refinancing, which would finally turn theselow-efficient enterprises into“zombie ones”. Through accurately classifying bank assets, providing adequate provision, accelerating the write-off of non-performing loans and improving market disposal mechanism, we should revitalize stock assets, make structural adjustment and keep steady economic growth while managing non-performing loans in a comprehensive manner.

Key words: non-performing loans, disposal, “zombie” loan