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Chinese Banks Create In-house Debt Collection Teams as Non-Performing Loans Balloon

By   xinyue  Jun 26, 2024, 6:03 a.m. ET
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One major reason behind banks expanding their in-house collection teams is the increased pressure from non-performing assets in recent years.

AsianFin-- Several joint-stock and private banks in China have announced recruitment plans for debt collection positions as they face constantly growing distressed personal loans.

Candidates for the positions are required to hold at least a bachelor's degree, with backgrounds in finance, law, or accounting, as well as extensive experience in debt collection.

Typically, banks maintain small in-house collection teams and rely heavily on outsourcing for the majority of their debt collection activities. The job of a debt collector is often viewed as involving "harassing messages and threatening phone calls," making the position seem low-threshold.

So, why are banks now opting to handle collections themselves? Furthermore, why are these recruitment efforts mainly seen in joint-stock and private banks rather than state-owned banks?

Banks like China Everbright Bank, Huaxia Bank, WeBank, and Hunan Sanxiang Bank have recently posted recruitment advertisements for debt collection roles. For instance, Hunan Sanxiang Bank is seeking senior debt collection management talent and senior telephone debt collectors, among other positions. These roles require candidates to develop and execute debt collection management systems, supervise overdue customer collections, and manage follow-up actions.

The qualifications for these positions include a bachelor's degree or higher, preferably in finance, law, accounting, or related fields, and at least five years of relevant experience in finance or credit. The roles also demand extensive knowledge of telephone collection techniques, data management skills, and the ability to lead training and achieve collection targets, coupled with a keen risk awareness.

On job sites and social media, these recruitment ads are numerous, often with "non-outsourced/non-dispatched" highlighted.

One major reason behind banks expanding their in-house collection teams is the increased pressure from non-performing assets in recent years. Data from the National Financial Supervision and Administration Bureau show that while the non-performing loan ratio of commercial banks dropped to 1.59% in 2023, the balance of non-performing loans increased by RMB 141.4 billion from the previous quarter.

For example, China Everbright Bank, despite maintaining a low non-performing loan ratio, saw its non-performing loan balance reach 47.476 billion yuan (US$ 6.47 billion) by the end of 2023, with overdue loans growing by RMB 3.8 billion year-on-year.

The Industrial and Commercial Bank of China (ICBC) has reported that its personal non-performing loans (NPLs) have reached 60.757 billion yuan, marking an increase of 11.202 billion yuan. The Agricultural Bank of China (ABC), China Construction Bank (CCB), and the Postal Savings Bank of China (PSBC) reported personal NPL balances of 59.176 billion yuan, 57.094 billion yuan, and 49.875 billion yuan, respectively. Among joint-stock banks, China Merchants Bank (CMB) had the highest personal NPL balance at 44.346 billion yuan, while both China CITIC Bank and China Minsheng Bank reported figures exceeding 20 billion yuan.

Additionally, banks face a new challenge from organized "anti-collection" activities, prompting them to enhance their collection standards by building in-house teams. Anti-collection groups emerged after 2020, exploiting regulatory directives that allowed flexibility in repayment arrangements for individuals affected by the pandemic.

These groups often involve black-market operations, manipulating customers into making unrealistic demands like "credit repair" or "fee waivers," leading to frequent and sometimes escalated complaints. Banks need advanced technological tools to identify and manage these high-risk behavior, employing AI and large financial models to block such infiltration.

Regulatory crackdowns on illegal collection practices have led banks to prefer in-house collection teams for compliance. For instance, after nearly a year of halted operations, Hunan Yongxiong Asset Management Group, once the largest collection company in China, announced its complete transition away from collection services.

Several banks have been fined for poor management of outsourced collection agencies. Stricter regulations now mandate that financial institutions prudently manage outsourcing and bolster their internal collection capabilities.

Given the tightening compliance landscape and the reduction of compliant outsourcing agencies, banks, especially smaller ones, are increasingly relying on self-operated collection teams to manage their growing volumes of non-performing loans.