Bad loan transfers pick up pace

A noticeable uptick in the listing and transfer of nonperforming loan packages is emerging across China's banking sector, as lenders take proactive steps to clean up their balance sheets and accelerate the disposal of risks, analysts said.

In the first three months of the year, nearly 30 banks issued more than 390 transfer announcements for nonperforming loans via the China Credit Assets Registry & Exchange Co, with more than 280 NPL portfolios listed for sale in March alone. The push comes after several years of rapid expansion in retail banking, which has begun to expose pockets of rising credit risk.

Against the backdrop of industry-wide strategies to reach lower-tier customers, long-tail customers tend to have relatively weaker risk resilience, leading to a rise in NPL ratios for related assets, said Gao Zhengyang, a special research fellow at Jiangsu Su Merchants Bank.

At the same time, the digitalization of consumer lending has accelerated, with the share of unsecured loans continuing to increase. Such loans lack collateral or guarantees, leaving limited effective risk mitigation tools, Gao added.

Tian Lihui, a professor of finance at Nankai University, said that outstanding balances of personal consumer loans and business loans have continued to grow in recent years, accumulating certain risks during the process of expanding into lower-tier customer segments.

This year's Government Work Report proposed to increase capital replenishment through various channels and prudently handle the nonperforming assets of financial institutions.

The report also said a full range of resources and means will be leveraged to address risks in small and medium-sized local financial institutions.

Tian noted that amid a continued narrowing of net interest margins, banks' ability to absorb nonperforming assets through their own profit accumulation has weakened, making it necessary to accelerate risk disposal through market-based transfers.

The surge in NPL transfers is driven by clear policy expectations.

On Dec 29, the National Financial Regulatory Administration issued a notice extending the pilot program for NPL transfers to Dec 31, 2026. Meanwhile, the China Credit Assets Registry & Exchange Co introduced fee reduction measures: starting Jan 1, it continues to waive listing service fees for NPL transfers and offers a 20 percent discount on transaction service fees. These policies have reduced the compliance costs for financial institutions in disposing of bad assets.

Ma Tingting, an analyst with Guotai Haitong Securities, said that data disclosed by the China Credit Assets Registry & Exchange Co show that there were about 1,274 listed NPL transfer projects in 2025, involving a total outstanding principal and interest of 432.9 billion yuan ($63 billion), a sharp increase of 58.8 percent compared with 2024.

Last year, banks significantly stepped up NPL transfers and the recovery and disposal of written-off assets, with NPL transfers becoming a primary channel for handling bad loans.

In last year's NPL transfer structure, corporate loans, credit card loans, personal consumer loans, personal business loans, and combined personal consumer and business loans accounted for 18.7 percent, 32.2 percent, 38.2 percent, 3.3 percent, and 7.6 percent, respectively.

Among these, the scale of personal NPL transfers surged by 85 percent year-on-year.

Gao said that transferring NPLs through market-based approaches can accelerate risk resolution, improve asset quality indicators, reduce NPL ratios and provisioning pressure, lower capital tied up in these assets, and free up credit resources to support more dynamic sectors. From the perspective of the financial system as a whole, having professional institutions take over and dispose of bad assets can enhance efficiency and help foster a more mature market ecosystem.

Analysts believe that banks must introduce external capital through capital increases while shedding nonperforming assets to reduce risk-weighted asset scales, thereby achieving a substantive improvement in capital adequacy ratios. Capital replenishment provides a necessary buffer for risk resolution.

Dong Ximiao, chief economist at Merchants Union Consumer Finance and deputy director of the Shanghai Institution for Finance & Development, said that capital injections can better meet banks' needs for business expansion, support national strategies, increase credit supply, prepare for stricter regulation, and strengthen their capacity to absorb risks and losses.

jiangxueqing@chinadaily.com.cn