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Five causes and three responses to non-performing loans from our commercial banks
In recent years, the rate of non-performing loans by commercial banks has been rising as a result of slowing domestic macroeconomic growth and supply-side restructuring, with the average non-performing lending by national commercial banks rising from 0. 95 per cent at the end of 2012 to 1. 91 per cent at the end of the first quarter of 2020. In terms of the balance of non-performing loans, at the end of the first quarter of this year the balance of non-performing loans of our commercial banks was $261 trillion, compared to $49. 29 billion at the end of 2012. With the rapid growth in the size of the bad assets, the problem of the bad assets has clearly hampered the development of commercial banks, thereby affecting our financial stability。
I. Causes of non-performing loans
The reasons for identifying non-performing loans are, on the one hand, that the impact of the economic downturn on enterprises cannot be ignored, and, on the other hand, that financial institutions have not yet managed their loans in a manner that is sufficiently intensive, such as the lack of in-depth pre-credit surveys, the non-implementation of loan terms and the lack of post-credit management. We can summarize the following points:
The phenomenon of heavy lending has not been addressed
In the development history of financial institutions, there has been a history of heavy business development, light risk control, heavy lending and light loan management. This is largely influenced by the orientation and approach of the appraisal process, which, while most financial institutions emphasize the need for a matching of benefits and risks, the reality is that the size test is ahead of schedule and robust, and quality assessment is subject to factors such as the late classification of assets and the auditing of subsequent adjustments, which tends to lag, contributing to some extent to “short-sighted” behaviour in operations, leading to “light quality” on scale. Most of the tests are conducted in a “pay-for-money” way, directly with loan lending, linked to loan lending, loan earnings, resulting in agencies reinvesting heavy earnings, over-sizing scale expansion and neglecting asset quality control requirements. At the same time, the tenure of executives in financial institutions tends to lead to a one-sided tendency to pursue performance during a term of office, with risk-controlled business developments occurring in the context of development and risk-based games。
2. The concept of risk management is still not well received
Financial institutions are vulnerable to “gold customers”, such as lack of in-depth analysis of loans in monopolistic industries and enterprises, government projects, various means of lowering access standards, adjusting their risk limits and expanding credit awards; and poor monitoring of post-credit deregulation, the use of loans and the operation of enterprises. In order to create a source of investment, overstretched confidence and reliance on second-repaying sources, it was argued that secured loans were good loans as long as they were secured, ignored the existence in practice of a substantial lack of security capacity, problems of “assurance” enforcement, problems of overvaluation of collateral and liquidity. In the course of the loan management process, it was considered that “no-deficit is a good loan”, that insufficient attention was paid to major business matters, that there was no in-depth analysis of the enterprise's cash flow and that the loan risk could not be judged in a timely and accurate manner, thus losing the best opportunity to dispose of it. The long-termization of liquidity loans, which, after the maturity of the loans, rely exclusively on a loan transfer, considers that “new versus old is the best solution” by turning a blind eye to the lack of competition in the market, the deterioration of the business performance or the resulting loss of potential risks。
Inadequate control of credit processes
Process management is a top priority for modern commercial banks, and issues of process control are worth studying. In the case of newly exposed poor controls, it would appear that the appraisal, operating and disposal sectors are all functional and potentially accountable. For example, the business sector has a regulatory responsibility for bad formation, but it does not have to deal with it, the security department does not have to deal with bad formation, it does not have to pay for bad formation, it does more with performance, it is not the business sector and it is more concerned with numbers than the project itself。
4. Importance of classification of credit asset risk
The impact of the timeliness and accuracy of classification of credit asset risk on asset quality and appraisal should also be of sufficient concern. It is well known that the recognition of non-performing loans is based on the risk classification of credit assets. The results of the risk classification affect impairment, and if the risk classification is inaccurate, the risk classification is not exposed in a timely manner, the impairment preparation is inaccurate, and the performance of the individual operators is reflected in the pre-accuracy of penalties。
Inadequate accountability and accountability
Awarding operational responsibilities is a very serious and professional exercise, testing and evaluating the entire process. One of the main problems we currently have in this regard is that the number of personnel is more pronounced than the volume of work; the second is that the number of types of business and the history of the project is more pronounced; and the third is that there is insufficient control over the policy requirements and institutional underpinnings at all stages, often at the expense of the personal qualities of the persons responsible and the quality of those responsible is not guaranteed. In the case of accountability, the project has a relatively long process, ranging from poor development to accountability, and delays in and avoidance of accountability have a direct impact on its seriousness and its proper disciplinary and educational role. In the case of comprehensive liability determination and accountability, it is not difficult to find that liability determination is much more focused on poor post-prime management than on in-depth investigations of pre-primation investigations, over-emphasis on incompetence in the details of the post-prime operations, avoiding deficiencies in the selection and marketing strategies of pre-prime clients, and that accountability for the treatment and punishment of front-line employees is far more intense than on the treatment of decision-making operators, and the problems of unfair and ineffective penalties have a greater impact on non-performing loans。
Ii. Response to the difficult collection of non-performing loans
Improving the quality of assets and curbing the trend towards the concentration of non-performing loans requires the identification of problems, self-restraint and coping strategies. There are several things to do:
1. Addressing awareness and mechanisms, focusing on breakthroughs
The first is to address the issue of profit and risk relationships. While upholding the “development is the imperative”, the concept of “sustainable development” should be enhanced, credit access should be tightened and credit rating and credit certification programmes approved. The second is to address the pressures of risk management and the dynamics of business development. Identification of key risk points and due diligence requirements for the various components of credit operations, and identification and accountability. It is necessary to prevent the pursuit of business development, neglect risk management, and to avoid fear, develop due diligence exemptions, provide clear guidance to different types of clients, and address the concerns of loan managers. There should be strict accountability for failure to perform with due diligence and to act as an incompetent person, especially when the failure to do so directly results in the relocation of assets. The third is to address the institution-building of loan management. To further clarify the lines of responsibility and main risk points for loan management at all levels, to establish scientific, efficient and accountable mechanisms for managing the marketing, access, approval and distribution of credit, to establish a post-credit enterprise risk assessment system, to establish an appraisal system for loan management, to establish a sound loan management incentive system, to put in place due diligence guidelines for credit positions, and to link the results of the evaluation to rewards and penalties for institutions and personnel. Communication mechanisms for information exchange need to be established to prevent information asymmetries and layers. The establishment of a system of risk early warning meetings that allows credit risk events to be evaluated in a timely manner, with a single, multi-household approach and greater incentives for the mobilization and disposal of non-performing loans。
2. Continue to strengthen the management base and improve the asset quality control system
3. Increasing capacity to deal with poor stocks degrees
To increase efforts to deal with poor stock, the first priority must be to curb the emergence of new exposures to non-performing loans. • continuous consolidation and development of quality client groups to improve the quality of credit assets at source with sustainable development. Risk monitoring and strategic research on exit of key clients to avoid situations where a potential risk is turned into a real risk by “regress” and “regress”. The second is to use adequate policies and various means of indigestion. There is a need to strengthen policy research, project ownership and the application of appropriate policies to the right clients, making full use of new policies, tools and tools to speed up the processing of non-performing loans and to absorb historical burdens. The third is the establishment of mechanisms to regulate asset quality control incentives. Use policy leverage to fully mobilize motivation, implement mechanisms for quality control and accountability of credit assets of leading teams, and introduce liability lending. The introduction of a system of incentives and sanctions to improve accountability for quality control of credit assets, with a serious responsibility to determine the underlying incentives for credit asset management。
