Source: Financial Times-China Financial News Author: Reporter Pang Dongmei 

Affected by various factors such as the epidemic, my country's commercial banks have increased their efforts to dispose of non-performing assets, and the supply of non-performing assets in the market has maintained a steady increase. For asset management companies whose main business is non-performing asset management, they face more market opportunities as well as some challenges.

The current market has formed a "5+2+N+ banking system" market structure, and various market entities have seized the current market opportunities and continuously explored innovative development in the field of non-performing asset business.

Build a "big bad" pattern

The four major asset management companies (AMC), which have successfully completed commercialization after successfully completing the policy tasks assigned by the state, are still the main force and the most important participant in the non-performing asset market. The opening of Galaxy Assets has added a new force to the national asset management company camp, turning the original four into five. This also means that national asset management companies will further improve their ability to acquire and dispose of non-performing assets.

Following regulatory requirements, the four major asset management companies focus on their main businesses, give full play to their counter-cyclical adjustment functions, actively and rationally acquire non-performing asset packages on the acquisition side, use comprehensive methods on the disposal side, and introduce investment banking thinking to improve disposal efficiency. Judging from the current public data of the four major asset management companies, the overall operation is stable. While actively acquiring non-performing asset packages launched by commercial banks, asset management companies have also expanded the scale of non-performing asset acquisitions by non-bank financial institutions and non-financial enterprises, and continued to expand their business based on the "big non-performing" pattern.

Industry insiders believe that compared with commercial banks, trusts and other non-bank financial institutions have increased their non-performing rates more significantly. Relatively speaking, non-bank financial institutions are also weaker in resisting risks. Therefore, these institutions are more willing to deal with bad practices. . Affected by the epidemic, the real economy has encountered some difficulties, and the scale of non-bank financial institutions has also increased.

As the fifth nationwide asset management company, the opening of Galaxy Assets will help asset management companies better participate in the non-performing asset business of the capital market. The four major asset management companies are mainly involved in the disposal of non-performing loans of commercial banks, and have less involvement in the capital market. The newly established Galaxy Assets, relying on its parent company, can make full use of its business advantages in the capital market and can more easily explore The business system featuring non-performing asset management, debt-to-equity swaps, and investment banking will better carry out investment banking operations related to corporate restructuring, including mergers and reorganizations, bankruptcy reorganizations and other businesses.

It is foreseeable that in the field of disposal of non-performing assets in the capital market, the exploration of asset management companies may be a new business starting point. However, Galaxy Assets, which is in dislocation competition with the four major asset management companies, has limited impact on the non-performing asset market in the short term.

Participants have their own advantages

The purpose of establishing local asset management companies is to resolve regional financial risks and serve the real economy. Its development has also experienced the initial extensive growth and now it is gradually moving towards standardized development. Under the constraints and guidance of a series of regulatory policies issued by financial management departments, local asset management companies have continuously strengthened their focus on their main businesses in recent years. The main business operations of local asset management companies have also continued to develop, and have gradually got rid of the initial mode of entrusted and cooperative acquisitions, and have begun to focus on independent acquisitions.

According to industry insiders, the sources of non-performing assets of local asset management companies mainly come from financial institutions, especially banking financial institutions, and non-bank financial institutions account for a relatively small proportion of non-performing assets. Local asset management companies mainly compete with national asset management companies in the region.

Bank-based financial asset investment companies that focus on market-oriented debt-to-equity swaps have played an active role in reducing corporate leverage and mitigating financial risks through the acquisition of bank claims on companies and conversion into equity. What is different from other asset management companies is that the debt-to-equity swap business of bank-based financial asset investment companies accounts for more than half of their main business income. In recent years, the amount of debt-to-equity swaps of financial asset investment companies has increased significantly.

Some experts said that due to the focus on market-based debt-to-equity swaps, banking-based financial asset investment companies have little impact on other institutions in the industry.

In addition, foreign-funded institutions included in "N" have continuously increased their willingness to enter my country's non-performing asset market in recent years. With the advancement of my country's financial opening up, many well-known foreign institutions, including Oak Tree, Blackstone, and Goldman Sachs, have participated in my country's non-performing asset-related fields through multiple channels such as funds or cooperation with domestic institutions. Oaktree Beijing has become China's first foreign asset management company, which is more conducive to foreign direct and convenient participation in the non-performing asset market. Later, more qualified foreign institutions will enter my country's non-performing asset market. Foreign-funded institutions will intensify the competitive situation in the non-performing asset market by relying on cross-cycle operating experience, value-added technology and financial strength.

Explore new business opportunities

The increase of market players promotes intensified competition. But the current increase in supply also brings new opportunities to asset management companies. Since last year, the financial management department has introduced policies to expand the scope of non-performing asset transfers, including pilot single-family corporate non-performing loan transfers, personal loan non-performing batch transfers, and expanding the scope of non-performing loan ABS trials, further enriching the business areas of non-performing asset management.

Under the guidance of supervision, asset management companies will further focus on the main responsibilities and main businesses, seize the opportunities emerging in the market, further increase efforts in the acquisition of non-performing assets, and continue to play their role in resolving financial risks.

Industry insiders predict that with the gradual mitigation of risks, the scope of non-performing assets will continue to expand, and asset management companies should continue to expand their business based on the "big bad". It is worth noting that, currently facing new opportunities in the bad market for non-financial institutions, asset management companies should resolve risks from economic transformation, the development of national-level urban agglomerations and metropolitan areas, industry leaders, capital markets, non-bank financial institutions, and small and medium-sized financial institutions. In other aspects, continue to explore suitable non-performing asset business opportunities.

The current domestic and international macroeconomic situation and the impact of the epidemic have also put new pressure on the non-performing asset market. Although facing a good window for the collection of non-performing assets, the difficulty of disposing of non-performing assets is also increasing due to the pressure on economic growth. Many factors have caused asset management companies to face rising manpower, financial resources, and management costs, and narrowing profit margins.

The increasing difficulty of disposal has prompted asset management companies to accelerate the progress of diversified and multi-channel disposal of non-performing assets. With the narrowing of profit margins for traditional disposal models, the use of comprehensive methods and innovative and diversified disposal methods will become an important development trend in the future.

Editor in charge: Yuan Hao