China to let banks sell off loans in prelude to possible bailout

Source: Reuters

China is developing a new trading platform to enable banks to sell off loans to a wider range of investors, in a move that could pave the way for a government bailout of lenders or distressed asset sales to private investors.
The trading platform, now in the testing phase, is designed to introduce banks to a new class of investors, including non-bank financial institutions and large companies.
Currently, the lack of well-established precedents for asset disposals effectively leaves banks only two options: sell non-performing loans in private deals, mostly with big state-backed asset management firms, or keep rolling them over indefinitely to avoid booking a loss.
Most analysts believe Beijing will eventually be forced to use some public funds to help peel off bad loans from state banks, but the ability to draw in at least some private capital could reduce the cost of that bailout.
The new platform could aid the effort to draw in private investors by allowing for price discovery for loan transfers, creating benchmarks that could guide future deals. Greater transparency in pricing could thus lure even more investors.
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