Bogged down in billions in NPL, lenders outsource the recovery function to external agencies
The voice of Li Wen, 28, a debt collector in Shanghai, became hoarse earlier this month, due to hundreds of high-decibel phone calls in the past two months to credit cardholders who defaulted on their repayments.
Li's employer, Shanghai China Promise Ltd, foresees high demand for firms like itself as various types of lenders, including banks, are expected to outsource debt collection due to rising bad loans.
For China's banks, peer-to-peer lending platforms and microfinance companies, the problem of non-performing loans or NPL intensified in the past five years.
That brought about a need to hire specialist debt-collection agencies, particularly in regions where credit expanded and economic growth slowed, said analysts.
For, employing a full-time team of hundreds of debt-collectors could prove a huge cost for lenders.
Chai Jun, a manager with Shanghai Heng Xin Asset Management Company, said it may cost more than 3 million yuan annually for a branch of a commercial bank in Shanghai to hire a full-time debt-collection team dedicated to errant credit card-holders alone. However, outsourcing the whole task could cut the cost by more than half.
The need for external debt-collection agencies is particularly felt before the end of June and December every year, the "seasonal peak" for lenders that scramble to meet regulators' half-yearly asset quality requirements.
No wonder, Shanghai China Promise's staff strength rose from 120 to 500 in the last two years. It plans to hire more in the next few years.
A report by China Orient Asset Management Corporation, which manages bad loans, said NPL may continue to grow in China into 2017.
