Author(s)

Shifen Wang, Zi Lin

Corresponding Author

Shifen Wang

ABSTRACT

Since the slow growth of economy made many firms difficult to survive, the rate of bad loans in China’s commercial banks increased. The control of non-performing assets became a focus of risk management in banks. Over the recent years, the industrial sector has relied on the high-leverage, high-liability method to maintain its operation. Although it worked in the short term, it would damage the long term competitiveness. In the context of structural reforms on the supply side, a new round of debt-equity swaps was launched in 2016 to speed up the de-leverage process, ease the financial burden of enterprises and reduce the rate of bad loans of banks. The new round of debt-equity swaps, different from the government-led one in the 1990s, emphasizes marketization and legalization, which brings both opportunities and challenges to commercial banks. This article introduces the background of the restart of the debt-equity swaps from the perspective of industrial sector and commercial banks. After that, it introduces the features and differences of the debt-equity swaps led by the government in the late 1990s and the market-oriented debt-equity swaps of this time. Then, by reviewing the domestic research on debt-equity swaps and the disposal of non-performing assets of commercial banks, the article points out the problems faced by market-oriented debt-equity swaps of this time. In the end, it puts forward some proposals for commercial banks to implement debt-equity swaps.

KEYWORDS

Debt-equity Swaps, Non-performing Assets, Commercial Banks, Market-oriented