The Major Restructuring of the Debt Collection Industry: Why Are Banks Selling Off Bad Debts at a Loss?
Hello everyone, I'm your financial journalist. Today, we're going to discuss a topic that might sound a bit dark, but it actually affects everyone's wallet and the very survival of banks: the "shock-clearing" of the debt collection industry and the sale of non-performing assets at extremely low prices.
In simple terms, banks and consumer finance companies have a huge amount of bad debts that people can't pay back. In the past, they relied on external companies to collect the payments. However, with stricter regulations and the reorganization of these collection companies, these bad debts are now either difficult to sell or can only be sold for a fraction of their original value. As a result, banks are selling them off at crazy discounts—some are even being sold for less than 50% of their original value.
Is this just banks trying to lighten their financial statements or are they really admitting their losses? What's the economic logic behind this? Let's break it down in plain language.
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1. Surplus Supply and Buyer Power: Why Do Bad Debts Sell for Less When There's Urgency?
First, let's look at an counterintuitive phenomenon: more people want to sell their bad debts, but the overall market is shrinking.
According to data from the Yindeng Center (China's Banking Credit Asset Registration and Transfer Center), in the first half of 2026, 24 licensed consumer finance companies listed for the transfer of personal bad loans, with a total amount of 53.2 billion yuan, a nearly 75% increase from the same period last year. The number of companies participating also rose from 15 to 24, accounting for nearly 80% of all licensed consumer finance companies in the country.
But! At the same time, the total amount of all types of bad loans listed on the market decreased by 10%. This indicates that only consumer finance companies are desperately trying to sell off their assets, while other types of assets are not in such a hurry to be sold.
It's like in a neighborhood where most homeowners are calm, but only a few renovation companies are eager to clear their inventory of building materials. With more sellers, buyers (such as asset management companies like AMC) have more bargaining power.
The core logic is simple: the power to set prices has completely shifted to the buyers.
In the past, bad debts might have been sold at a 20% discount, but now the average discount rate has dropped to 6.3%, and for long-standing debts, it's even lower. Why? Because the capacity for debt collection has plummeted. WeBank's third-party collection agencies were halved in number within half a year, and the Ministry of Public Security has cracked down on "soft violence" in debt collection methods, making the traditional mass-collection tactics ineffective. Banks, holding a pile of uncollectible debts, don't dare to use aggressive methods and can only choose to sell them off at a discount.
In plain terms: If you have a bunch of expired coupons, you could previously sell them for a good price, but now there are fewer buyers, and the rules are stricter, so you have to sell them off cheaply.
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2. The Illusory Wealth on the Balance Sheets: More Interest Than Principal—How Much Loss?
Many people think banks are suffering huge losses when the discount rate falls below 5%, but there's a big misunderstanding: a large part of the "unpaid principal and interest" is not actually principal, but rather accumulated interest and penalties.
Let's look at a real example: A debt portfolio from Beijing Bank Consumer Finance, with a total value of 629 million yuan.
- Principal: 407 million yuan (the actual amount lent out).
- Interest + Penalties: 222 million yuan.
- Details: Of this 222 million, only about 30 million yuan is actual interest; the remaining 192 million yuan is in penalties (due to overdue payments).
This means that more than 30% of the value of this portfolio is "illusory wealth." If sold at a 4% discount, the recovery amount would be around 25 million yuan.
- Compared to the total value of 629 million yuan, that's a loss of 96%.
- But compared to the principal of 407 million yuan, only about 6% is actually recovered.
An even more extreme example: A credit card bad debt portfolio listed by Huaxia Bank has a principal of 4.877 billion yuan, but the interest and fees amount to 7.404 billion yuan—more than 1.5 times the principal!
In plain terms: If you lend someone 100 yuan and they don't pay it back after two years, according to the contract, you're owed 200 yuan (100 yuan principal + 100 yuan interest). Now, if you try to sell this debt for 100 yuan, the buyer will only pay 10 yuan.
- On the surface, it seems like a 95% loss.
- But in reality, you only lent out 100 yuan, and you only recover 10 yuan, so the actual principal loss is 90%.
- The extra 100 yuan in interest was never expected to be recovered, so in a way, it's a relief.
So, the low discount rate is partly because the principal can't be recovered, and partly because the balance sheets are inflated with uncollectible interest.
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3. Why Not Sue? The Cost of "Rational Giving Up"
You might ask: If 6% of the principal can still be recovered, why don't banks hire lawyers to sue the borrowers and instead sell the debts at a discount?
The answer is simple: it's not cost-effective.
Data shows that 99.98% of the borrowers in these debt portfolios have never been sued. Why?
1. Small amounts: Many borrowers owe only a few thousand yuan (for example, Nanjing Bank-Fubank customers average 4,284 yuan in debt). The cost of hiring lawyers, going through legal procedures, and enforcing judgments could be higher than the amount owed.
2. Difficult to enforce: Borrowers are often unreachable or have no assets to seize.
3. Time cost: Legal processes are long and costly in terms of capital usage.
When the cost of collecting debts is higher than the potential recovery, selling them off at a discount is the most rational choice. This isn't panic-selling; it's a simple math problem:
- Option A: Try to collect on your own, spend 1 million yuan, and recover 500,000 yuan—lose 500,000 yuan.
- Option B: Sell to a professional agency for a 100,000 yuan fee and recover 400,000 yuan—lose 600,000 yuan? Not really. If the discount is very low, say 100,000 yuan is recovered, the loss is significant, but it frees up cash flow and management resources immediately.
In plain terms: If you have a bunch of expired coupons and used to get a good price for them, but now there are fewer buyers and stricter rules, you have to sell them off cheaply.
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4. The Illusion of Better Financial Statements: The False Promise of Reduced Bad Debt Rates
Do banks' bad debt rates improve just because they sell off their debts?
Not necessarily, and it might even make the situation worse.
Take Chongqing Bank as an example: The balance of retail loans decreased by 8.43%, but the retail bad debt rate increased by 0.09 percentage points. Why?
- Denominator effect: When the bank reduces its loan volume, better customers often repay early or move to other banks, leaving behind only high-risk borrowers.
- Dilution effect: If the bank expands its corporate loan business, the overall bad debt rate may appear better, but the deterioration of its retail (personal) business is masked.
The key contradiction is:**
- Accounting-wise: Selling off bad debts and recognizing losses is a form of "sacrifice."
- Operationally: Selling bad debts frees up capital, reserves, and management resources, which is a form of "lightening the load."
The question is: Where does the freed-up resources go?**
If the bank reinvests the saved money and resources in profitable new businesses, it's a positive move. But if the new businesses also perform poorly (for example, with interest rates at 24%, and the combined costs of traffic, funds, and bad debt losses are approaching break-even), then the profit from selling off bad debts is just a temporary fix, and the real issue remains.
In plain terms: You might lose weight by selling off bad debts, but if you then invest in unprofitable new businesses, your overall financial health doesn't improve—you're just temporarily thinner.
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5. A Dark Reflection: From Focusing on Age to Addressing the Root Causes
The article mentions a disturbing detail: in the promotional materials for these debt portfolios, the age of the borrowers is even being used as a selling point.
- Banks like Ping An and Shanghai Pudong emphasize that borrowers are from the "middle-aged group" or aged 30-50 and have a high chance of resuming payments.
- Consumer finance companies' portfolios have borrowers with an average age of 37.95 years old and an average debt of a few thousand yuan each.
What does this mean?
A person under 40 years old, owing a few thousand yuan and in arrears for two years, is now treated as an asset and sold for a few cents per hundred yuan. In the eyes of intermediaries, their age, credit history, and other factors are used to determine the "quality" of the asset.
This is not just a financial issue but also a social one:
1. A sign of a mature market: The ability to price and trade bad debts indicates that market mechanisms are working, which is good.
2. The fundamental problem remains: Do these companies have the ability to prevent the next batch of borrowers from ending up in these portfolios?
If banks and consumer finance companies are only good at selling and packaging bad debts without focusing on more precise risk control and more reasonable pricing to reduce high-risk loans, then this cycle of "sacrifice" will become a chronic and painful one.
In summary:
This round of debt clearance is both a form of "sacrifice" and a way to "detoxify" the financial system:
- Sacrifice: Due to significant principal losses and difficult new business profits, it's a short-term loss.
- Detoxification: By shedding historical burdens, resources are freed up for potential future growth.
But the ultimate success depends on whether banks can manage their new businesses effectively. If they can't, then all the "lightening of the load" is just a brief respite before the next round of sacrifices.