China may allow banks to securitize assets -paper

SHANGHAI, Sept 16 (Reuters) - China is actively studying a proposal to allow banks to securitize their assets to cope with tighter liquidity and a potential rise in bad loans, the official Shanghai Securities News reported on Friday, citing a senior banking regulator.

The China Banking Regulatory Commission (CBRC) plans to work with the People's Bank of China to submit a report to the State Council, China's cabinet, regarding the plan, CBRC assistant chairman Yan Qingmin was quoted as saying by the newspaper.

China has raised interest rates and banks' required reserves multiple times this year to keep inflation under control.

Bad loans may also rise in coming months if debt-ridden local governments fail to pay back loans they made through special funding vehicles.

Chinese local governments have amassed some 10.7 trillion yuan ($1.7 trillion)of debt at the end of 2010 through so-called local government financing vehicles, an audit by the National Audit Office in June showed.

($1 = 6.392 yuan) (Reporting by Soo Ai Peng; Editing by Jonathan Hopfner)