Chinese debt collectors thrive as consumers grapple with COVID-hit economy
SHANGHAI / BEIJING (Reuters) – This is not a good sign for any economy as debt collectors are booming and in China right now the industry is in the midst of a hiring surge.
Whole Scene Asset Management, a debt collection firm based in the southern province of Hunan, plans to double its workforce to 400 this year as it expands to new cities.
“Debt collection companies have mushroomed,” said company founder Zhang Haiyan. “And with the growth in bad debts this year, everyone is adding new hands.”
Rival Bricsman is also hiring – hoping to increase its workforce by around 1,000 from 400 to 500 this year after reaching a deal to collect delinquent consumer loans for the China Minsheng Bank 600016.SS, said people familiar with the case, refusing to identify themselves as they were not authorized to speak to the media.
Bricsman, which is based in the eastern province of Jiangsu and has other major banks among its customers, did not respond to a request for comment.
As a growing number of consumers grapple with lost income in an economy hit by coronavirus and U.S.-China tensions, a growing wave of non-performing loans is causing concern among lenders – both among corporations from specialized consumer finance and traditional banks – and even among debt collectors.
China is in the midst of an “ongoing debt crisis,” said Joe Zhang, a business consultant and until last month vice president of the country’s largest debt collector, YX Asset Recovery.
The rate of consumer debt defaults is increasing and the collection of these loans has become much more difficult, he added, estimating that among some weaker non-bank consumer lenders, bad loans can amount to 30 to 30%. 50% of their portfolios.
This does not bode well not only for Beijing’s efforts to stimulate domestic demand, but also for the financial health of consumer finance companies that are helping provide credit considered essential to supporting the pandemic-stricken economy.
RETHINKING THE STRATEGY
China’s Banking and Insurance Regulatory Commission did not respond to a request for comment from Reuters on its current assessment of the risks posed by downgraded consumer loans.
He last said that default rates were under control when he noted a 0.13 percentage point increase in the NPL to consumer debt ratio in the first quarter compared to the start of this year. . But this data only captures bank loans and not those made by the large number of specialist consumer finance companies in the country, including micro-lenders.
Even in banks, which generally have more stringent lending criteria, concerns are mounting.
An internal review by Bank of Shanghai Co Ltd 601229.SS saw its NPL to consumer debt ratio skyrocket in the first quarter, a source familiar with the matter said.
“We have already started reducing our exposure to consumer credit by reducing our co-lending activities with smaller platforms,” said the source, who like other lending sources was not authorized to speak to the media and declined to be named.
Bank of Shanghai did not respond to a request for comment.
Chinese consumer debt has exploded over the past five years, fueled in part by the rush to issue credit cards, with outstanding bank-issued cards doubling to $ 17.6 trillion yuan ($ 2.5 trillion).
Internet consumer financing, which is only lightly regulated, has also increased 400-fold, reaching nearly 8 trillion yuan since 2014, according to the Guanghua School of Management.
And Chinese household debt – including mortgages and unsecured consumer loans – has swelled to levels equivalent to nearly 60% of GDP, from 18% in 2008, the peak of the global financial crisis.
Like Bank of Shanghai, some lenders are rethinking their retail strategy.
China Merchant Bank 600036.SS, which derives about 55% of its business from individual customers, is examining an earlier plan to increase that part of its business to 60%, its chairman Tian Huiyu said in April after his first-quarter results.
Shanghai ShangCheng Consumer Finance has raised its thresholds for new borrowing while stepping up debt collection efforts, a company official told Reuters.
Shanghai ShangCheng did not respond to requests for comment.
“Most licensed non-bank consumer finance companies in China lost money in the first half of the year,” the manager said, adding that many small businesses will “need capital injections to stay afloat. or they will face liquidity pressure when they write off huge debt. “
($ 1 = 6.9413 Chinese yuan)
Reporting by Samuel Shen in Shanghai and Cheng Leng and Ryan Woo in Beijing; Editing by Edwina Gibbs