Agricultural Bank of China Ltd. is planning China’s largest sale so far under a trial program for lenders to offload bad loans by packaging them up as asset-backed securities, Bloomberg reported. The lender plans to sell securities backed by 10.7 billion yuan ($1.6 billion) of nonperforming loans on the interbank bond market, it said July 22 on the Chinese bond clearing house website. The sale price will be the equivalent of 29% of the loans’ face value, with the recovery rate on the debt forecast at 41%, the lender’s statement showed. As corporate leverage soars and economic growth cools, China’s banks face a rising tide of bad loans. Dorris Chen, a credit analyst at Pacific Investment Management Co., said last week that the ministry of finance will eventually have to inject capital into the banking system, without saying when. The nation’s efforts to get to grips with its credit woes include debt swaps for local governments, proposals for banks to swap loans for equity stakes in companies, and the trial of the NPL-backed securities.
