The China Construction Bank (CCB) and Morgan Stanley signed agreements Tuesday on the joint handling of non-performing loans (NPLs), indicating that the first cooperation between a Chinese State-owned commercial bank and a foreign company on the disposal of NPLs has made substantial progress.
A CCB spokesman said that in May 2002 the CCB and Morgan Stanley signed a Letter of Intent on NPL cooperation, in a bid to accelerate the handling of NPLs and seek new approaches to handling NPLs. The two parties have agreed to the pilot project beginning in five branches in east China, which involves 4.3 billion yuan (about US$520 million) of principal and interest book balance.
He said that with the efforts of more than a year, the CCB and Morgan Stanley have completed a series of due diligence studies, structuring, negotiations on valuation and transaction documents regarding the pilot project. The next step for both parties is to jointly seek government approval.
He said that the two parties will establish a cooperative joint venture to own the assets and a joint venture loan servicing company to manage and resolve the assets.
In addition, Morgan Stanley will also provide the CCB with professional training on NPL investment management and disposal, as well as NPL securitization during the course of cooperation, he said.
In 2002, the CCB disposed 65.434 billion yuan worth of NPLs and recovered 33.503 billion yuan, including 28.992 billion yuan in cash. By the end of 2002, based on the five-category classification of loan quality, the CCB's overall NPL ration stood at 15.17 percent, the lowest among the four major State-owned commercial banks.
In 2003, the bank plans to cut its NPL ratio by four percentage points to make the ratio go below 12 percent by the end of the year.
(Xinhua News Agency July 9, 2003)
