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

Financial Associated Press, March 14 (Reporter Liang Kezhi, Luo Keguan) — As deposit interest rates enter the “1” era, leveraging financial strategies can push yields to 30% or higher. A relatively niche professional field, “bank non-performing asset disposal,” is becoming a “gold mine” as various funds rush to enter.

Recently, many asset management companies and local financial institutions confirmed to the Financial Associated Press that they have increased their business deployment and resource investment in this area. A “high-stakes gamble” around non-performing assets is quietly unfolding.

“Based on expectations of a bottoming out in first-tier city real estate valuations, our company has been actively involved in bank non-performing asset projects and portfolios since last year,” revealed a senior executive at a large AMC in Guangdong.

Several interviewees said that this “financial route” currently aligns with policy requirements and offers broad prospects. At the opening of the 2025 Financial Street Forum annual conference, 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, with the full-year transaction scale expected to surpass 200 billion yuan—more than 40 times the scale at the initial pilot in 2021.

However, professionals have expressed concerns to reporters. A senior executive at a large AMC noted that while social funds participating appropriately in non-performing asset disposal is positive, the long-term health of the market still depends on genuine disposal capacity, not just complex capital structures. Without professional disposal capabilities, relying solely on leverage and capital structuring to amplify returns could pose risks if real estate prices or recovery cycles fluctuate.

He believes that if such activities expand too rapidly, regulatory authorities at both central and local levels should intervene to warn and regulate.

Capital Floods In: From Local Finance to Professional Institutions

Currently, the process for bank non-performing asset disposal generally involves listing on auction platforms, bidding by other companies, followed by classification, collection, and other procedures 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, combined with external investors and operators, specifically to acquire and revitalize bank non-performing commercial real estate projects,” said a manager at a private asset management firm in Changsha, Hunan.

This trend is especially evident in local finance. According to the same source, 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 have entered 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—at a 20% price.

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. The actual investment was 20% as a subordinate and leading party, with the rest contributed by partner institutions. After two years of operation, the project was sold for about 40 million yuan, yielding an annualized return of approximately 28%.

It is understood that leveraging such transactions could potentially achieve yields of 30% or higher.

This level of return, in an environment where deposit rates have entered the “1” era and asset yields are generally declining, is highly attractive.

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

Market-Driven Disposal Heating Up: High Discounts and High Leverage in a “Mutually Reinforcing” Cycle

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—the highest level in history.

Unlike the previous administrative-dominated disposal model, this round features a highly market-oriented approach, with transfer, auction, and targeted disposal methods running in parallel through various trading platforms and intermediaries, involving a more diverse set of participants. With high premiums on legal auctioned properties and banks selling non-performing assets at high discounts in bulk, many funds are entering the market through structured leverage to “dig for gold.”

A professional from a South China asset management firm revealed that they can access core information about bank-listed commercial real estate projects through informal channels, buy at the lowest price, have partners “package” and operate the assets normally, and then profit by reselling or reapplying for bank loans once market valuation improves.

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

Typically, the leverage ratio for subordinate fund operators can reach around 1:5, usually around 1:3.

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

Supply and Demand Dynamics: Accelerated Disposal Driven by Realistic Considerations

The prosperity of the non-performing asset market is closely linked to supply from banks. Several industry insiders believe that the current robust supply-demand situation is primarily due to banks releasing accumulated non-performing assets pressure over the past three years.

According to the National Financial Regulatory Administration, in the first half of 2024, banks disposed of over 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 increase capital pressures.

Regulatory requirements mandate high provisioning for non-performing loans, directly impacting profits. If non-performing volumes keep rising, banks face capital adequacy pressures. Therefore, bulk transfers and accelerated disposal help banks reduce non-performing ratios, improve financial indicators, and support profit growth amid slowing revenue.

Accelerated disposal has become a practical choice. For small, dispersed personal loan non-performing assets, the cost of self-collection and disposal exceeds that of bulk offloading.

Regulatory pressure also encourages banks to speed up disposal. Through bulk transfers or asset securitization, banks can quickly lower non-performing loan ratios and improve financial metrics.

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

Hidden Risks Behind the Boom: High Leverage and Financial Risks

Behind the market’s hotness are rising concerns over high leverage and financial risk transfer, especially in unpublicized structured financing modes.

“Under structured financing, subordinate funds ‘fight big with small,’ which effectively increases leverage,” said an asset collection company executive in East China. “If the disposal cycle extends, funding costs rise rapidly. Large market fluctuations could even cause funding chain breaks.”

A leader from a Guangdong financial 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 proportions. Not every deal yields such good returns, and disputes and lawsuits are common when risks materialize.

While the market for non-performing asset disposal prospers, some market participants worry whether this process truly reduces risks or merely redistributes them among new investors through complex financial structures and tools.

Another concern is compliance risk. According to regulations, transfers of non-performing assets by financial institutions generally require public platforms and participation by licensed entities like local asset management companies.

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

Figure: 2024 Local AMC Revenue Rankings

The Financial Associated Press notes that regulators have recently emphasized strengthening oversight of the non-performing asset market. In late 2023, the National Financial Regulatory Administration issued the “Interim Measures for Supervision and Administration of Local Asset Management Companies.”

The latest local action is the recent release of the “Implementation Rules for Supervision and Administration of Local Asset Management Companies in Inner Mongolia.” This is the first detailed local regulation following the national regulatory framework.

An industry insider who has studied the document told the Financial Associated Press that Inner Mongolia’s rules are more detailed and stricter than the national measures, with targeted provisions such as a maximum financing balance of three times net assets, a 1.5% risk reserve, and bans on AMC disguised financing through channels. These regulations are clearly pointed. They also believe that since non-performing asset disposal involves local interests, the timing of local implementation will be a good window into policy trends.

However, the reporter notes that since the State Financial Regulatory Administration’s directive in July last year, major coastal provinces with large non-performing asset disposal volumes have yet to officially release detailed implementation rules.