China Growth Industry: Bad Debt Collection and Management

China.org: As bad loans rise, so do private debt-collection companies
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.

...Such tasks may include making phone calls and visiting a debtor's home. If debt-collection agencies exceed their remit or violate the law, banks cannot be held responsible, although their reputation may get besmirched.

"Debt-collectors generally don't adopt violent means. An odd extreme case could involve getting physical with truant debtors, but that's about it. For debt-collection agencies, profits are not so high as to compel them into adopting illegal methods," Xiao said.

But unlike banks, other lenders like peer-to-peer lending platforms, small loan companies and guarantee companies engaged in private lending are said to be not averse to dropping the kid-glove treatment and instead using threats to make errant debtors repay.

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