UPDATE 1-Chinese debt collectors thrive as consumers grapple with COVID-hit economy

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SHANGHAI / BEIJING, Aug. 13 (Reuters) – This is not a good sign for any economy as debt collectors are booming and in China, right now, the industry is in full swing of hiring .

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 China Minsheng Bank, people at aware of the question, refusing to identify themselves as they were not authorized to do so. talk 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 tensions between the United States and China, a growing wave of non-performing loans is causing concern among lenders – to both with specialist consumer finance companies 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 default 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 boost domestic demand, but also for the financial health of consumer finance companies that are helping provide credit deemed 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 of Bank of Shanghai Co Ltd saw its NPL to consumer debt ratio soar 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 as the stock of debt for bank-issued cards doubled to reach 17.6 trillion yuan (2.5 trillion dollars).

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 Merchants Bank, which derives about 55% of its business from retail customers, is examining an earlier plan to increase that part of its business to 60%, its chairman Tian Huiyu said in April after its 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

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