5x Leverage Betting on 30% Returns, Capital Accelerates "Hunt" for Bank Non-Performing Assets, Margin Trading High-Stakes Gamble—Who Bears the Risk?

Cailian Press, March 14 — (Reporter Liang Kezhi Luo Keguan) As deposit interest rates enter the “1” era, leveraging financial leverage can boost yields to 30% or even higher. A relatively niche professional field, “bank non-performing asset disposal,” is becoming a “gold mine” that various funds are rushing into.

Recently, many asset management companies and local financial institutions confirmed to Cailian Press reporters that they have increased their business layout and resource investment in this area. A silent “high-stakes gamble” around non-performing assets is underway.

“Based on expectations that first-tier city real estate valuations are bottoming out, our company has been actively involved in bank non-performing asset projects and asset packages since last year,” revealed a business leader from a large AMC in Guangdong.

Several interviewees said that this “financial route” currently aligns with policy requirements and offers broad prospects. At the opening ceremony of the 2025 Financial Street Forum annual meeting, Li Yunze, director of the National Financial Regulatory Administration, stated that efforts should be made to strengthen non-performing asset disposal and capital replenishment, enrich disposal resources and methods, and ensure the stable operation of the financial system.

Data from the national-level bank non-performing asset auction platform, the China Banking Credit Asset Registration and Circulation Center (YinDeng Center), shows that in the first half of 2025, bulk transfers of personal bad loans totaled 107.6 billion yuan. The full-year transaction scale is expected to surpass 200 billion yuan, more than 40 times the scale at the initial pilot in 2021.

However, professionals expressed concerns to reporters. A former senior executive from a large AMC believed that social funds participating in non-performing asset disposal through appropriate channels is a good thing, but in the long run, the healthy development of the non-performing asset market still depends on real disposal capacity, not the complexity of capital structures. Without professional disposal capabilities, relying solely on leverage and capital structure to amplify returns could pose risks if real estate prices or recovery cycles fluctuate.

He believes that if such business expands too rapidly, regulatory authorities at both central and local levels should intervene to warn and standardize.

Capital Floods In: Collective Shift from Local Finance to Professional Institutions

Currently, the process of bank non-performing asset disposal generally involves auction platforms listing assets, other companies bidding and purchasing, then classifying and collecting to realize the assets.

“A company just established an asset operation department at the beginning of the year, using 10 million yuan of its own funds, partnering with external capital and operators, specifically to acquire and revitalize bank non-performing commercial real estate projects,” said a manager of a private asset management firm in Changsha, Hunan.

This trend is especially evident in local financial sectors. According to the manager, many personnel and funds originally engaged in small loans and leasing in Hunan have shifted heavily into non-performing asset disposal. Meanwhile, auction houses, real estate agencies, and other institutions are also entering the market, acting as intermediaries between capital providers and asset owners, earning substantial commissions, and forming an industrial chain with upstream and downstream linkages.

On the other hand, the demand for risk mitigation among small and medium-sized financial institutions continues to grow. Jinshang Bank (2558.HK) recently disclosed that it transferred 1.421 billion yuan of corporate non-performing assets to JinYang Asset Management (a Shanxi local AMC) for 310 million yuan, completing the transaction at a 20% discount.

The influx of funds is driven by pragmatic calculations and profit considerations.

A corporate banking professional from a southern city explained that in 2024, they disposed of a relatively “clean” commercial real estate project, starting at 28 million yuan, later purchased by an AMC for 30 million yuan, with the actual investment being 20% as subordinate and leading investor, while the rest was funded by partner institutions. After two years of operation, the project was finally sold for about 40 million yuan. The actual annualized return for the lead investor was around 28%.

It is understood that returns on such transactions, leveraging financial leverage, can reach 30% or higher.

This level of return, in an era where deposit interest rates have entered the “1” era and yields on various assets continue to decline, is highly attractive.

As expectations for returns increase, some private funds have also formed upstream and downstream industrial operation models. Some auction houses, real estate agencies, and other institutions act as intermediaries, connecting capital providers with asset owners and earning hefty commissions.

Market-Driven Disposal Heating Up: High Discounts and High Leverage “Double Boost”

Over the past year, the buyer’s market for bank non-performing assets has continued to heat up. According to the “Development Research on China’s Non-Performing Asset Industry (2025),” by the end of 2024, the stock of non-performing assets was estimated at about 85 trillion yuan, with disposals reaching 38 trillion yuan, hitting record highs.

Unlike the previous disposal model mainly based on administrative allocation, this round of non-performing asset disposal is highly market-oriented, with transfer, auction, and targeted disposal methods running in parallel, promoted through various trading platforms and intermediaries, with more diverse participants. With high-premium transactions for legal auctioned properties and banks selling non-performing assets at high discounts in bulk, many funds are entering the market through structured financing and leverage to “dig for gold.”

A manager from a South China asset management firm revealed that they can access core information about bank-listed commercial real estate projects through acquaintances, buy at the lowest price, have partners “package” and operate normally, and then, when market valuation rises, exit through resale or re-apply for bank loans for arbitrage.

The common “priority—mezzanine—subordinate” layered financing model has become the main vehicle for leveraging funds. Priority funds account for about 70% of total funds, offering fixed returns of 12-15%; mezzanine funds account for 10-20%, with floating returns; subordinate funds account for 20-30%, bearing the first losses but enjoying high floating returns.

Typically, the leverage rate for the operators of subordinate funds can reach 1:5, usually around 1:3.

Market signals support optimistic judgments. Since last year, the transaction scale of legal auctioned properties in first-tier cities has continued to expand, with some auctioned targets trading at premiums. Data from the National Bureau of Statistics shows that in January this year, new and second-hand home prices in first-tier cities decreased by 0.3% and 0.5% month-on-month, respectively, remaining flat or narrowing by 0.4 percentage points from the previous month. Although prices are still slightly declining, the decline has significantly narrowed, and mainstream market opinions believe that housing prices in first-tier cities have entered a phased bottoming period.

Supply and Demand Both Booming: Banks Accelerate Disposal Due to Practical Considerations

The prosperity of the non-performing asset market is driven by supply from banks. Several industry insiders believe that the current robust supply-demand relationship is mainly due to the release of non-performing pressure from banks over the past three years.

According to data from the National Financial Regulatory Administration, in the first half of 2024, banks disposed of more than 1.4 trillion yuan of non-performing assets, with a significant portion related to real estate loans and personal mortgage loans.

For banks, the continuous growth of assets and the “tail” of non-performing assets will increase capital pressure.

Regulatory rules require higher provisioning for non-performing loans, directly impacting bank profits; if non-performing assets continue to rise, banks face capital replenishment pressures. Therefore, bulk transfers and asset securitization have become practical choices to accelerate balance sheet cleanup, supporting profits amid slowing revenue growth and alleviating capital occupation.

Accelerated disposal has become a realistic option. For small, dispersed personal loan non-performing assets, the cost of self-collection and disposal exceeds that of bulk off-balance-sheet transfers.

Regulatory assessment pressures also push banks to speed up disposal. By transferring assets in bulk or through securitization, banks can quickly reduce non-performing loan ratios and improve financial indicators.

This has made banks more willing to sell assets through market-oriented channels. A manager from a Hangzhou asset management firm noted that current bulk disposals of non-performing assets are partly motivated by “buying time.”

Hidden Risks Behind Prosperity: High Leverage Financing and Potential Risks

Behind the market boom, debates over high leverage and financial risk transfer are increasingly prominent. Unpublicized structured financing is a primary concern.

“In structured financing models, subordinate funds ‘bet small to win big,’ which effectively increases leverage,” said an asset collection professional from East China. “If the disposal cycle extends, funding costs can rise rapidly. Large market fluctuations could even cause fund chain breaks.”

A person from a Guangdong financial industry association pointed out that the details of non-performing asset financing contracts are very complex and critical. Even priority funds need to specify risk-bearing timelines, order, and ratios. Not every deal yields such good returns; disputes and lawsuits often occur when risks materialize.

While the market for non-performing assets is thriving, some are concerned whether this marketization is truly about risk digestion or merely redistributing risks among new investors through complex financial structures and tools.

Another concern is compliance risk. According to regulations, the transfer of non-performing assets by financial institutions generally must be conducted via public platforms, involving licensed entities such as local asset management companies.

A person from an asset management firm explained that in practice, some institutions participate through “channel modes,” where licensed AMCs bid for assets, but actual funds come from external investors. Although not explicitly prohibited by law, this approach is under regulatory scrutiny. Some financing activities involving raising funds from unspecified investors may risk illegal fundraising or disguised public deposit absorption.