Asset Management Company to implement the debt for equity program

To tackle the non-performing loan problem, China’s Big Five state-owned banks have recently set up asset management companies (AMCs) to undertake debt-equity swaps program, approved last October by the Chinese government.

This program will allow struggling companies’ bank debt to be swapped for equity. As the State Council pointed out in the guidelines attached to the program, it should be reserved only to companies with good prospects for development and growth.

While some believe that the debt for equity program could improve the bank's asset quality, other analysts warn about the potential risks due to a lack of trade rules and market mechanisms for managing the new business.

In any case, banks that create AMCs will be more stimulated to convert the corporate debt, as they will not to include the stake directly in its financial statements but this will be done directly by AMCs.

Furthermore, not only banks authorized to create their own AMC will reduce non-performing loans but, even more important, they can profit from the new business. According to many experts, it will make banks available to grant cash to companies, allowing the country’s economy to benefit from it.