China considers setting up debt managers to deal with bad P2P loans

China’s banking regulator is looking to establish regional bad debt managers to help address the fall-out from the country’s peer-to-peer lending industry scandal.

Companies in Shanghai, Zheijang and Shenzhen have sent applications to set up local asset managers to deal with bad loans, after thousands of P2P platforms collapsed, according to unnamed sources cited by Bloomberg. The China Banking and Insurance Regulatory Commission has not yet approved these applications, the report said.

The sources said that, once approved, the regional asset managers will focus on P2P bad loans before gradually extending their remit to other distressed assets.

Read more: P2P in 2019: The highs and the lows

At their peak, China’s P2P industry had almost 50 million investors and $150bn (£115.bn) in debt outstanding.

However, fraud and defaults led to President Xi Jinping’s crackdown on financial risk in the sector which caused the industry to shrink in size.

Around this time last year, the Chinese authorities arrested 62 suspects abroad and seized $1.5bn (£1.2bn) in assets from P2P platforms accused of illegal fundraising.

Despite trying to clean up the sector for the past two years, more than 2,000 platforms have failed.

Read more: P2P regulation: A brave new world