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SHANGHAI, June 16 (Reuters) - China's Ping An Bank Co Ltd will become the first Chinese company to issue asset-backed securities on a mainland exchange, a major step forward in official efforts to make bank assets more liquid so that loans can be made without increasing money supply.
Market sources have told Reuters that regulators plan to grant quotas totalling 300 to 400 billion yuan for firms to sell asset-backed securities (ABS) in coming years as a tool to shift risk away from the banking system, reducing the chances of a financial crisis as economic growth slows and bad loans increase.
Ping An Bank, a medium-sized Shenzhen-based lender, will soon issue 2.63 billion yuan ($424 million) worth of securities backed by small loans to consumers which will be then listed on the Shanghai Stock Exchange.
"The issue signals that ABS will come to the Shanghai Stock Exchange for the first time and that the expansion of a programme to expand our country's asset securitisation has made major progress," the exchange said in the statement late on Sunday.
Asset-back securities have previously been limited to the interbank market in China and were only traded by major institutional investors. This new move will expand ABS trading to smaller institutions such as brokerages and mutual funds, as well as to retail investors.
"This will expand the product's investment groups, disperse banking system risk and simultaneously improve liquidity in the secondary market," the bourse said.
China's M2 broad money supply has expanded to a whopping 117 trillion yuan, five times than that of 10 years ago, fuelling worries that rapid money growth could fan consumer inflation and push up already-frothy property prices. ($1 = 6.21 Yuan) (Reporting by Lu Jianxin and Pete Sweeney; Editing by Edwina Gibbs)