Summary:
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China extends policy allowing disposal of bad personal loans
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Aim is to support banks amid rising defaults and weak margins
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Transfers of bad personal loans surged sharply last year
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Credit card loan stress remains a key concern
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Regulators prioritising balance-sheet stability
China’s financial regulators have moved to extend a key policy allowing banks and asset management firms to dispose of non-performing personal loans, signalling a renewed push to stabilise balance sheets as credit stress builds and profitability comes under pressure.
According to sources familiar with the matter, report Bloomberg (gated), the National Financial Regulatory Administration (NFRA) issued guidance last week extending rules that permit the transfer and sale of soured personal loans and non-performing single-borrower corporate loans beyond their original end-2025 deadline. The policy, first introduced in early 2021, had been due to expire next year.
The extension highlights regulators’ growing concern over deteriorating asset quality, particularly in consumer finance. Rising defaults on credit cards and other personal loans have become a notable strain for banks, even as broader economic conditions remain uneven and household confidence fragile. By allowing greater flexibility in offloading bad assets, authorities are seeking to prevent further pressure on capital ratios and preserve financial stability.
Chinese lenders have already stepped up efforts to clean up their balance sheets. Transfers and write-offs of distressed assets have accelerated sharply as net interest margins have fallen to record lows, squeezing profitability and reducing banks’ capacity to absorb losses organically. Official data cited by local media show transfers of bad personal loans reached 37 billion yuan in the first quarter of last year, more than eight times higher than the same period a year earlier.
Within that total, transfers of non-performing credit card loans rose to 5.19 billion yuan, underlining stress in unsecured consumer lending. The surge in activity points to a more proactive approach by banks to managing problem assets, though transparency has become more limited after the official credit asset transfer centre suspended regular disclosure of detailed figures.
For policymakers, the extension of the disposal framework reflects a balancing act. Regulators want banks to recognise and resolve bad loans more quickly, but without triggering a sharp tightening in credit conditions or undermining confidence in the financial system. Allowing continued asset transfers to specialised management firms provides a pressure valve at a time when economic recovery remains patchy.
Overall, the move reinforces Beijing’s message that financial stability remains a priority, even as rising defaults and weak margins underscore the challenges facing China’s banking sector in the current cycle
