China Bohai Bank Co, partly owned by Standard Chartered plc, proposed to sell US$3.5 billion worth of assets at a discount to bidders including the nation’s bad debt managers to shore up capital levels.

The assets, with a principal amount of 25.6 billion yuan , will be disposed of in a public tender to potential bidders, including China’s big four bad banks led by China Cinda Asset Management Co, according to an exchange filing on Monday.

The amount the Tianjin-based lender is seeking to sell is 54% more than the 16.6 billion yuan non-performing loans (NPLs) that it reported having at the end of last year. Bohai Bank also had 28.9 billion yuan in special mention loans at the end of last year. This is debt where payment is seen at risk, but that has not become non-performing yet.

StanChart owns 16.26% of Bohai Bank, and the UK lender has booked large impairments on its stake over the past years. It took a US$850 million impairment last year, for an accumulated total of US$1.46 billion as of the end of 2023, according to StanChart’s annual report. Bohai Bank's shares, little changed on Monday, are down 16.8% in Hong Kong this year. 

China’s banks have been struggling with rising bad debt after real estate market slumped, and as the economy struggles to regain momentum. Margins have also narrowed to record lows, after lenders were called on by Beijing to help businesses and consumers with cheap loans. 

The assets for sale incurred a loss before tax of 1.58 billion yuan in 2023, the filing said, compared with the lender’s profit of 5.08 billion yuan. 

Liao Zhiming, the chief banking analyst of China Merchants Securities Co, said the assets for sale should include both NPLs and special-mention loans. 

Bad asset disposal “remains a key measure for the bank to strive to clear out risks as soon as possible and improve its balance sheet”, he said, noting the discount of the sale is “not very low”. 

Bohai Bank said the initial minimum consideration of the transfer will be 17.7 billion yuan, a 40% discount off the 29 billion yuan aggregate amount of the assets after including interest payment, penalty and judicial fees. It hasn’t entered any agreement with the potential buyers, it said, adding they may or may not participate in the tender. 

The lender expects to complete the sale in batches, with exact dates yet to be determined. It will use the proceeds to replenish working capital as well as boost its asset quality and capital buffers. 

Bohai Bank’s bad loan ratio rose to a four-year high of 1.78% at end-2023. Its capital adequacy ratio was 11.58% as of end-December, while the core Tier 1 capital adequacy ratio was 8.17%, compared with regulatory requirements of 8% and 5% respectively. 

  - Bloomberg