Assessment of Financial Non-Performing Assets

Author: Cheng Fengchao
Publisher:
Publish Date: 2003-03-01
Features: Due to historical reasons, China's state-owned commercial banks have accumulated a large amount of non-performing loans, which have severely impacted financial security and order. To deepen financial reform, prevent and resolve financial risks, and promote the sustained and healthy development of the national economy, the Chinese government drew on international best practices and established four state-owned financial asset management companies in 1999. These companies were tasked with transferring a portion of the commercial banks' non-performing loans to the asset management companies for centralized management and disposal, with the operational objective of maximizing asset preservation and minimizing losses. The practical application of financial asset management companies in disposing of non-performing assets and achieving their operational goals has opened up a new field in the evaluation sector while also presenting new challenges. In addition to the evaluation of property rights and equity, which is similar to traditional asset evaluation, most evaluations focus on debt assets. Currently, there are no unified operational standards for debt asset evaluation in China, and many new situations and issues in the evaluation process urgently require theoretical and methodological exploration and practice.
The Evaluation of Non-Performing Financial Assets first explores several theoretical issues related to the evaluation of non-performing financial assets. It clarifies that this type of evaluation is a broad concept, encompassing not only general asset evaluation but also debt repayment capacity assessment and debt value analysis, as well as other types of evaluation consulting. It highlights that the purpose of the evaluation is to provide fair value references and advisory opinions for asset management companies in managing and disposing of non-performing assets. The value type evaluated is non-market value, and the nature of the evaluation report is purely advisory, lacking any certification function.
Secondly, the book proposes different evaluation methods based on the specific evaluation objects and purposes. For property rights and equity evaluations, existing evaluation methods and operational standards should be followed, but the practical needs of asset management companies for accelerated disposal should be fully considered. The current use value of the evaluation object should be assessed, and its liquidation value within a limited time frame should be reasonably estimated. In response to the actual needs of asset management companies in implementing debt restructuring, the book analyzes the actual debt repayment capacity of enterprises based on a comprehensive evaluation. It proposes two analytical methods: the hypothetical liquidation method and the credit rating method. Debt repayment capacity evaluation is a key focus of the book and one of the most widely used evaluation methods by asset management companies. The book provides a complete evaluation framework to help evaluation institutions conduct this type of evaluation in a standardized manner.
To meet the needs of asset management companies in transferring debt assets, the book proposes an evaluation framework for analyzing debt value, outlining four analytical methods: the comprehensive factor analysis method, the transaction case comparison method, the Delphi method, and the simulated auction method. Additionally, for the batch disposal of debt assets, the book suggests a method for classifying and evaluating bundled debt.
Beyond introducing evaluation methods for intermediaries, the book also designs working papers for asset management companies to review non-performing asset evaluation reports and proposes standardized review statements. In addition to systematically elaborating on the theory and methods of non-performing financial asset evaluation, the book includes numerous reference cases, making it highly practical and readable. It is not only suitable for the needs of asset management companies in disposing of non-performing assets but also for professionals in commercial banks, intermediaries, and students and faculty in asset evaluation-related fields at universities.