Financial Asset Exchanges: Auctioning Bad Loans to the Masses

Financial asset exchanges are a distinctly Chinese type of financial institution. There are dozens of financial asset exchanges operating around the country as electronic auction houses and online fundraising platforms. They operate as a place where equity in state and private companies that are not listed on a stock exchange can be marketed and auctioned openly. They’re used by leasing companies, factoring companies (that buy firms’ accounts receivable), small loan companies, and other investment companies to raise funds, most commonly by selling fixed income investment products that are not so dissimilar to wealth management products. And some exchanges specialize in providing a platform to both auction and trade coins, art, antiques, and aged baijiu.

They have also become a major avenue through which banks can dispose of their NPLs by auctioning them online, directly to the public. By allowing banks to bypass the AMCs, the exchanges mark the democratization of China’s distressed debt market, providing an opportunity for small funds and individual investors to buy NPLs. It also broadens the potential pool of NPL buyers at a time that banks are more actively trying to resolve their bad loans. However, given China’s secondary market for distressed debt is relatively new, the exchanges could also be exposing relatively inexperienced investors to risk they’re ill-prepared to manage.

Measuring the volume of NPLs being auctioned over the exchanges is incredibly difficult. There is no central repository of data on exchange-based NPL sales, nor do the exchanges themselves publish aggregate data. However, last year MacroPolo set about taking a snapshot of the market. Based on our research, we found that there are at least 20 exchanges spread across China that auction NPLs in widely varying volumes. We monitored those 20 exchanges[1] between October and December last year. During that period, we counted 3,071 NPLs with a face value—that is, outstanding principal plus interest and unpaid fines—of about 90.4 billion yuan that were marketed to the public for auction by both banks and AMCs. Of that total, 55.9 billion yuan were auctioned by banks, and 34.5 billion yuan by AMCs. (Given the constraints on the available data, we have no way of knowing what percentage of those actually sold. A more detailed account for our methodology is further below.)

A Tool for Everyone
The share NPLs auctioned over financial asset exchanges by type of financial institution in 4Q17
Source: Financial asset exchanges.

Still, the exchanges represent only part of the NPLs that are available to investors in the secondary market to acquire. The AMCs remain a much larger source of NPLs for investors. Over the last three months of 2017, Cinda disclosed on its website that it had 124.1 billion yuan worth of NPLs that it was willing to sell (that is, separate from those it was auctioning on an exchange), and Huarong posted notices on its website soliciting expressions of interest on 63.2 billion yuan worth of NPLs. Where the AMCs differ is that traditionally they have sold NPLs in large batches that small investors can’t afford. In contrast, the exchanges’ NPL business has seemingly emerged to cater to Beijing’s evolving openness to public investment in distressed debt.

A Player, But Not a Giant
Volume of NPLs auctioned by exchange versus those marketed to the public by two biggest AMCs in 4Q 2017
Source: Financial asset exchanges; Cinda and Huarong websites.

Rules published in 2001 by the People’s Bank of China[2] explicitly decreed that the Chinese public wasn’t allowed to buy NPLs directly from banks. The only third parties that banks could sell their NPLs to were financial institutions, which for the most part meant the AMCs. For their part, AMCs would sometimes sell NPLs onto foreign specialty distressed debt funds and local government-backed organizations. Both the banks and AMCs typically sold loans in large batches.

That limitation was overturned in 2009 when the China Banking Regulatory Commission (CBRC) allowed investors other than financial institutions to buy NPLs.[3] In 2012, the Ministry of Finance (MoF) and CBRC jointly issued rules mandating that only AMCs can acquire bundles of more than 10 NPLs.[4] That was reduced to bundles of no more than three loans in 2017.[5] The CBRC doesn’t seem to explicitly require banks to use exchanges when bypassing the AMCs and selling directly to the public, but it does advise that banks use public auctions as a way to ensure transparency and fair pricing.[6]

NPL exchanges aren’t entirely unique by international standards. In the United States, online NPL auctions exist, but the companies that run them also operate as brokers, taking a more active role in bringing buyers and sellers together. Other platforms that call themselves “exchanges”are little more than sites where loans (mainly for commercial and residential property) are agglomerated, like a supermarket for would-be investors to browse before contacting lenders directly to negotiate a purchase.[7] Nonetheless, both kinds of exchange fulfill a similar function to that of China’s financial asset exchanges: they provide an opportunity for small investors to tap a market that they otherwise might not have access to.

The first exchanges were set up in Beijing and Tianjin in 2010 as part of an effort to boost the transparency of state asset sales. The previous year MoF had issued a directive requiring that financial companies transferring state assets had to do so over provincially-based exchanges, which as yet did not exist.[8] Still, the NPL business isn’t new for the exchanges. Beijing Financial Assets Exchange and the Tianjin Financial Assets Exchange—the first two exchanges—started selling NPLs within weeks of their respective launches in mid-2010. (Both exchanges count major AMCs among their shareholders. Great Wall holds a 18.4% stake in the Tianjin exchange, and China Orient holds 17.6%. Cinda holds 9.7% of the Beijing exchange.)

Today, many financial assets exchanges—which are regulated by provincial authorities—not only auction NPLs, but provide a place where collateral seized from delinquent loans can be auctioned to the public. For instance, when Guangxi Nonferrous Metals was forced into liquidation by a court after passing into bankruptcy, its assets—both its equity in subsidiaries and its physical inventory—were auctioned off over the Guangxi provincial exchange.

The exchanges help to open up the NPL market to more investors. They also allow banks to cut out the AMCs from the NPL disposal process, thereby potentially allowing banks to extract more value from the disposal of a loan, rather than having to share that value with an AMC that might choose to flip the NPL to the secondary market at a mark-up. However, exchanges aren’t a substitute for the AMCs. It’s unlikely that the secondary market will be capable of absorbing all the NPLs that banks will need to sell in the years ahead. In contrast, the AMCs can be leaned upon by political authorities to buy and warehouse NPLs that the open market doesn’t want.

Of course, there are risks involved. Some exchanges market NPLs for very short periods of time—sometimes only two weeks—prior to auction, giving would-be investors little time to engage in sufficient due diligence. Moreover, inexperienced buyers might overpay for distressed debt, particularly in the current environment where the discount on NPLs (that is, the difference between an NPL’s face value and its sale price) has been shrinking as demand among investors has risen.

Without dwelling on the risks here, we lay out a snapshot of what this thriving but widely overlooked market looks like. This isn’t meant to be a definitive accounting of every NPL marketed by banks and AMCs to the public in the fourth quarter of 2017. Rather, it’s meant to provide a sketch of both the size of the nascent secondary market for NPLs and the nature of what’s being sold and who the sellers are.


We monitored 20 exchanges that had a track record of selling NPLs, and we collected data on NPLs that were due to be auctioned between October 1 and December 31, 2017. There are dozens of asset exchanges in China, and we acknowledge that we may have missed some that sell NPLs. However, we are confident that the sample includes the most active platforms for auctioning bad loans. We also limited our timeframe to three months for two reasons. First, some exchanges delete NPL auction details from their websites immediately after the auction date has passed, which meant that we had to collect data on a real-time, ongoing basis. Second, given the volume of data involved—which were manually collected by three incredibly hard-working student fellows—collecting data for a much longer period was not feasible.

When an NPL—or a batch of NPLs—is put up for auction on an exchange, the exchange issues a statement marketing the NPL to the public. However, there is little consistency between exchanges regarding what information they disclose in those statements. More information is available to potential investors when they register their interest in a given auction as a precursor to bidding on a loan, but our efforts were confined solely to publicly available information.

Where possible, we collected data on the following aspects of each NPL:

  • the name of the bank or AMC that originated the loan;
  • the name of the debtor;
  • the outstanding principal, interest, fees and fines on the loans;
  • whether collateral, pledges, or guarantees were posted against the loans, and if so what form they took;
  • the price at which the loan was posted on the exchanges, or the minimum bid price. (The exchanges don’t publicly disclose the price at which the NPLs sell, nor do they disclose whether a loan sells or is passed in at auction.)   

We also cross referenced the name of the debtor with data from the State Administration of Industry and Commerce (SAIC) to determine whether the debtor was state-controlled or a private company. We also used SAIC data to determine the industries in which the debtors were registered. However, the names of the debtors were not made available by the exchanges for all loans. In such cases we were unable to cross reference the data with SAIC.

The data we collected doesn’t include NPLs posted for auction by AMC subsidiaries. Nor does it include loans posted by institutions other than banks and AMCs, such as trusts, leasing companies, and investment funds that occasionally use the exchanges to auction NPLs.

By way of comparison, we also collected data disclosed by Huarong and Cinda—the two largest AMCs—on their websites. From both the Cinda and Huarong websites we collated data from “asset disposal notices” (资产处置公告), which lay out basic details of loans the AMCs are offering for sale. Typically, these notices don’t specify how the loan will be sold. Eventually the loan might be sold through negotiations, through an on-site auction, or some other process. Of course, just because a loan is made available for sale doesn’t mean that it eventually sells. Still, it gives us a benchmark for comparing volume of NPLs being made available to the secondary market via the biggest AMCs relative to that of the other financial asset exchanges.


Of the 20 asset exchanges we monitored, four accounted for almost two thirds of all NPLs marketed over an exchange during the fourth quarter of 2017: the Tianjin Financial Assets Exchange (26.3%); the Shandong Financial Assets Exchange (18.5%); the Zhejiang Financial Assets Exchange (9.9%); and the Shenzhen Qianhai Financial Assets Exchange (9.8%). In most cases, the exchanges primarily auctioned NPLs from their own province, although there were a few exceptions. Very few of the Tianjin exchange’s NPLs were from Tianjin. Rather, about a third came from Inner Mongolia and a quarter from Beijing. Similarly, most of the Qianhai exchange’s loans came from Guangdong, Shandong, and Henan provinces.

Due to the inconsistency of the data provided by the different exchanges, we were unable to collect for every loan data on what industry the debtor operated in, what province it was based in, and whether it was state-owned or private. The following results come from reduced sample sizes:

BY INDUSTRY: Of the 63.6 billion yuan worth of NPLs in which the name of the debtor was disclosed (representing 70.4% of the total), more than 80% of all loans by value were to debtors operating in three industries: wholesale and retail (35.4%), manufacturing (27.9%), and real estate (17%).

Industrial Concentration
Face value of exchange-auctioned NPLs by debtors’ business, in 4Q 2017
Source: Financial asset exchanges.

BY PROVINCE: Of the 72.8 billion yuan worth of NPLs in which we know the debtor’s province of origin (representing 80.5% of the total), the highest concentration was in Shandong, which accounted for 23.8% of all NPLs by value. Inner Mongolia came in second with 16.6%, distantly trailed by Zhejiang (8.8%), and Beijing (8.1%).

Embraced by Some More Than Others
Relative concentration of exchange-auctioned NPLs in 4Q 2017, by province
Source: Financial asset exchanges.

BY OWNERSHIP: We collected data on whether debtors were state-owned enterprises (SOEs) or private firms. Those for which were we able to determine firm ownership identity represented 66.5 billion yuan worth of NPLs, accounting for 73.6% of our sample’s total. Of those, SOEs represented only 14.3% of the loan value (9.2% were state-controlled companies; 5.1% were collectives). The remaining 85.7% were private firms (including 5.9% that were sino-foreign joint ventures, and 0.6% wholly foreign-owned firms).

One factor that might contribute to the heavy bias toward private companies are rules[9] that heavily restrict the transfer for certain NPLs to the public. They include the NPLs that involve national security or sensitive information, and state firms that have been granted bankruptcy protection. However, certain private loans are also deemed off limits under the rules, including individual loans for housing, education, personal consumption, and car purchases.

BY LISTING PRICE: While the price at which the loans are sold is not available, in many cases the listing price of the loan is. Again, data availability is inconsistent across exchanges such that only 412 loans in our sample have a listing price. Three quarters of those are concentrated in four exchanges: Tianjin Financial Assets Exchange (37.6%); Shandong Financial Assets Exchange (14.8%); Shenzhen Qianhai Financial Assets Exchange (10.9%); and Haixia Financial Assets Exchange (10.7%).

Broadly speaking, about a third of all listing prices were set upward of 80% of the NPL’s outstanding face value (a combination of unpaid principal, interest, fees, and fines), another third were set between 40% and 80%, and a last third at less than 40%. Notably, for loans representing 15.5% of the outstanding face value, the listing price was set either equal to or greater than the combined value of the NPLs’ interest and principal, which presumably indicates that the debtors’ collateral was valued in excess of the outstanding value of the loans.

Pricing Proxy
NPLs’ auction listing price as a percentage of NPL face value, by range
Source: Financial asset exchanges.


[1] The exchanges include: Tianjin Financial Assets Exchange, Shandong Financial Assets Exchange, Shenzhen Qianhai Financial Assets Exchange, Zhejiang Financial Assets Exchange, Haixia Financial Assets Exchange, Hebei Financial Assets Exchange, Southwest United Equity Exchange, West Assets and Equity Exchange, Wuhan Financial Assets Exchange, Guangdong Financial Assets Exchange, Hunan United Assets and Equity Exchange, Jiangsu Financial Assets Exchange, Liaoning Financial Assets Exchange, Shanghai United Assets and Equity Exchange, China Financial Assets Exchange, Dalian Financial Assets Exchange, Property Rights Trading Center in Henan, Yantai Marine and Property Rights Exchange, Shenzhen United Property and Share Rights Exchange, and Shenyang United Assets Equity Exchange.

[2] 人民银行《中国人民银行办公厅关于商业银行借款合同项下债权转 让有关问题的批复》[2001]648号(PBOC, “Reply of the General Office of the People’s Bank of China on relevant issues concerning the transfer of creditor’s rights under the loan contract of commercial banks,” 2001, No. 648.)

[3] 银监会《中国银监会办公厅关于商业银行向社会投资者转让贷款债权法律效力有关问题的批复》[2009] 24号(CBRC, “Relevant Questions Regarding CBRC Rules on Commercial Banks Transferring Loans to Social Investors,” 2009, No. 24.)

[4] 财政部、银监会《金融企业不良资产批量转让管理办法》[2012] 6号(MOF, CBRC, “Administrative Measures on the Bulk Transfer of NPLs by Financial Companies,” 2012, No. 6.)

[5] 银监会《关于提升银行业服务实体经济质效的指导意见》[2017] 4号(CBRC, “Guidance on Raising the Banking Industry’s Effectiveness is Serving the Real Economy,”2017, No. 4.)

[6] 银监会《中国银监会办公厅关于商业银行向社会投资者转让贷款债权法律效力有关问题的批复》[2009] 24号(CBRC, “Relevant Questions Regarding CBRC Measures on Commercial Banks Transferring Loans to Social Investors,” 2009, No. 24.)

[7] The National Loan Exchange was originally set up to market loans for the Resolution Trust Corp. after the Savings and Loans crisis. Today it acts as a broker, auctioning NPLs for a range of financial institutions. In contrast, Loan MLS, which calls itself an online loan exchange, posts details of distressed mortgage loans online that potential investors can look over before contacting the lender directly.

[8] 财政部《金融企业国有资产转让管理办法》[2009] 54号 (MOF “Rules on the Transfer of State Assets by Financial Companies 2009, No. 54) Source.

[9] 财政部、银监会《金融企业不良资产批量转让管理办法》[2012] 6号(MOF, CBRC, “Administrative Measures on the Bulk Transfer of NPLs by Financial Companies,” 2012, No. 6.)

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