Also in the pipeline are deals valued at tens of billions of dollars via preferred-share sales, an instrument permitted for banks by the regulator only beginning in April that lets issuers raise equity without diluting voting control. "These are defensive measures in case there is a sudden change in the economy and you see a big spike in" non-performing loans, according to Nicholas Yeo, head of China and Hong Kong equities at Aberdeen Asset Management.
Zhejiang province, close to Shanghai on the eastern coast, for example, had 120 billion yuan of nonperforming loans at the end of 2013, says BNP Paribas, or around a fifth of the national total. "The objective here seems to spread the bad-debt burden a bit wider and also over a longish time period," Gary Greenberg, head of emerging markets at Hermes Fund Managers in London, said. "Taking up of bad debts by AMCs would free up the financial institutions to lend into the real economy.
Pushing banks to bolster their cash cushions will not only better protect them from deteriorating loans but could also help reopen the lending spigot and boost economic growth. "They are setting up the pieces of the jigsaw for the financial system to be much less state dependent and more market driven," Tai Hui, chief market strategist Asia at JP Morgan Asset Management, said.
Read more here: Business Spectator