News Center

Perspective | Current Status and Disposal Strategies of Non-Performing Assets in Personal Loans of Small and Medium-sized Banks

Published:

2024-12-31

The non-performing assets of personal loans in small and medium-sized banks include various forms such as personal consumption loans, personal business loans, personal housing loans, and credit card overdrafts. These refer to the amounts in personal loans that have not been repaid on time as agreed. In recent years, influenced by economic fluctuations and the continuous expansion of the personal credit market, the scale of non-performing personal loans has surged dramatically, becoming an important aspect of the financial market that cannot be ignored.

The non-performing assets of personal loans in small and medium-sized banks cover various forms such as personal consumption loans, personal business loans, personal housing loans, and credit card overdrafts, referring to the amounts in personal loans that have not been repaid on time as agreed.

In recent years, affected by economic fluctuations and the continuous expansion of the personal credit market, the scale of non-performing personal loans has surged dramatically, becoming an important part of the financial market that cannot be ignored.

1. Rapid Growth of the Personal Loan Non-Performing Market

The development of the personal loan non-performing asset market shows a series of significant characteristics, such as rapid growth in market size, large transaction volume, and diversification of participants.

In terms of market size, according to data released by the Credit Registration Center, the transaction volume of non-performing personal loan batch transfers reached 96.53 billion yuan in 2023, a substantial increase of 449.40% compared to the previous year. By the second quarter of 2024, the scale of personal non-performing loan batch transfers skyrocketed from 4.3 billion yuan in the first quarter to 27.85 billion yuan, an increase of 547.67%. In the third quarter of 2024, a total of 170 transactions of personal non-performing loan batch transfers were completed, with a total scale of 54.66 billion yuan. According to the "White Paper on the Development of the Personal Loan Non-Performing Asset Batch Transfer Industry (2023)," it is predicted that the total principal and interest amount for the entire year of 2024 is likely to exceed 300 billion yuan, and the number of asset packages transferred is expected to exceed 1,000, making this trend likely to become a reality.

In terms of transaction volume, according to statistics released by the Credit Registration Center, the total number of non-performing asset batch transfer transactions in 2023 was 553, with a transaction amount reaching 119.369 billion yuan, an increase of 222.68% compared to the previous year. Among these transactions, personal loan non-performing batch transfer transactions accounted for 390, with a total transaction amount of 96.538 billion yuan, a year-on-year increase of 449.43%.

In terms of participants, the number of participants in the personal loan non-performing asset market is continuously increasing, covering joint-stock banks, consumer finance companies, local asset management companies, and others.

2. Small and Medium-Sized Banks Must Adopt Diversified Disposal Paths for Non-Performing Personal Loans

The disposal of non-performing personal loans by small and medium-sized banks is influenced by compliance and jurisdiction agreements, and the actual disposal methods available are limited. Small and medium-sized banks not only hope to recover payments in the disposal of personal loans but also wish to complete the judicial process, achieve pre-tax write-offs, and free up occupied funds.

How to combine the recovery of payments with the completion of the judicial process to maximize the interests of small and medium-sized banks is a topic that we, as long-term service providers for the financial industry, should explore and discuss. Based on the needs of our clients, we should innovate service paths and methods to truly address the industry's difficulties and pain points.

Since the pilot program for batch transfers of personal non-performing loans was launched in 2021, the methods and strategies for banks and financial institutions to dispose of non-performing loans have continuously evolved with changes in the market and regulatory policies.

Small and medium-sized banks must adopt diversified disposal paths for non-performing personal loans. Diversified disposal refers to the organic combination of due diligence, telephone collection, mediation, litigation, arbitration, and enforcement, introducing comprehensive disposal institutions or experienced law firms, and fully leveraging the advantages of disposal institutions in their respective fields under the guidance of financial institutions.

Firstly, due diligence. By systematically managing non-performing personal loans and categorizing each debtor, a tailored strategy can be developed for each category, allowing for targeted disposal. With the support of local judicial institutions, limited judicial resources can be applied to the categories most likely to achieve recovery, maximizing the cost-effectiveness of input and output. At the same time, through legally compliant governance of litigation sources, the recovery of payments by financial institutions can be significantly improved while reducing the volume of litigation and alleviating debt conflicts.

Secondly, telephone collection. Telephone collection has shown significant effectiveness in small, high-quality cases, primarily through internal teams or external service providers collecting assets. Internal collection relies on the digital systems and manual reminders of financial institutions; external collection leverages the resources and systems of service providers. Telephone collection performs excellently for short-term overdue loans, but its effectiveness is limited for loans overdue for more than a year.

Thirdly, pre-litigation preservation and judicial mediation. With the diversified development of the market, pre-litigation preservation and judicial mediation have become new trends. This method significantly improves short-term recovery efficiency by taking measures such as freezing WeChat and Alipay accounts of borrowers. Compared to traditional litigation, pre-litigation preservation is more economical and efficient, reducing the consumption of court resources and aligning with the national direction of "governance of litigation sources." In the future, this model is expected to further enhance its position in the asset handling market.

Fourthly, judicial litigation. Judicial litigation, as an important collection method, is characterized by high recovery rates and strong compliance, but it faces challenges such as "difficulty in filing cases." Due to the small amounts and large numbers of personal non-performing loans, cases need to be distributed to over 3,000 grassroots courts nationwide according to the principle of "the plaintiff is the defendant." Although the filing process is complex, the recovery results are significant.

Fifthly, arbitration. In recent years, handling personal loan business through arbitration and mediation has also achieved good results, alleviating the pressure on court case loads.

Sixthly,Debt additionJudicial disposal. This innovative model allows third parties to participate in debt relationships without transferring the debt rights, sharing joint liability with the original debtor, breaking through jurisdictional restrictions, and providing more options and guarantees. This method has a short cycle and quick recovery. Although its application is still in the initial stage, it has strong flexibility in resolving debt disputes.

The pressure of non-performing personal loans in small and medium-sized banks will gradually become apparent. For law firms, it is essential to deeply study the service needs of small and medium-sized banks, plan reasonably, learn from market experiences, and introduce effective disposal methods. Diversified litigation and mediation may be a way to enrich diversified disposal. These changes present both opportunities and challenges for law firms, and faster planning and experimentation are necessary to stay ahead in the changing market.

Key words:

Perspective | The Supreme Court's approval of the new Company Law Article 88, Paragraph 1 not being retroactive may make it difficult for historical shareholders under the old law to obtain a "get-out-of-jail-free card."

Perspective | Confirmation of Members of Rural Collective Economic Organizations - A Discussion on the "Rural Collective Economic Organization Law"