| SHANGHAI, April 22
SHANGHAI, April 22 Issuance of Chinese
asset-backed securities (ABS) could triple to more than $160
billion this year, reactivating huge assets now mouldering on
bank books, as Beijing streamlines procedures for firms to
By making it easier for banks to repackage and resell
receivables - such as loan repayments on mortgages, car loans
and credit cards - the government hopes to free up banks'
balance sheets so they can lend more to the real economy.
The People's Bank of China (PBOC) announced this month that
regulatory approval will no longer be required to issue ABS, and
issuers will now only need to register to do so.
Getting banks to lend more is a major policy goal, given
banks have so far been reluctant to lend despite repeated
exhortations from top officials. Even Premier Li Keqiang has
called for banks to "activate existing assets," - which is where
this securitisation push comes in.
For example, a bank can take a portfolio of 5-year loans
sitting on its books, chop them up into tranches, and sell them
in chunks to other institutional investors who then receive the
interest payments made by the borrower.
The logic is simple. China's tiny securitisation market has
not tracked the expansion of China's $10-plus trillion economy,
and banks alone have assets worth $28 trillion on their books.
By encouraging banks to securitise these assets, Beijing can
reduce the need to print money to prop up the money supply and
keep downward pressure on real interest rates.
Market players now expect ABS issuance to more than triple
to 1 trillion yuan ($161 billion) this year, up from 300 billion
yuan in 2014, which was in turn twice the total issued since
"There is a huge demand from banks alone to securitise
assets," said Zhao Hao, economist at ANZ in Shanghai.
"General demand can easily push issuance value exceeding 1
trillion yuan ($161 billion) this year."
But Zhao said that the quality of the assets being
securitised was more important than the process of
Abuse of the ABS market was a primary reason for the global
financial crisis in which American banks securitised low-quality
sub-prime mortgages, repackaged them into opaque hybrid
products, and then sold them at yield too low to reflect the
In China, mortgages are also expected to be a major
component of ABS issues but most Chinese mortgages are good
quality because the average Chinese mortgage holder is not
"ABS based on banks' mortgages will be a good sale that we
will be very much interested in," said a trader at a Chinese
insurance company in Beijing.
"But proper pricing is a key issue as China is faced with
fledging, and thus inadequate, mechanisms to rate the underlying
Banks, automakers, property developers and securities
brokerages are among those expected to issue ABS, with banks
seen continuing to be the biggest issuers.
This is because banks have the largest pool of assets and
because they need more capital now to meet the stricter capital
requirements required under the BASEL III capital accord.
Issuance from automakers is also expected to grow quickly
with ratings agency Fitch forecasting that the auto ABS sector
in China will grow significantly in the next few years.
Insurers, pension funds, other long-term investors and banks
are expected to be the primary buyers of asset-backed
securities, traders say.
While many of these investors are state-owned or controlled,
the market does not view this as a quasi-bailout because the
assets being securitised are high quality, hence there is no
need for a bailout.
For now, only a small number of foreign institutions are
qualified to trade ABS on the Shanghai-based interbank market,
but Beijing is expected to improve access to the market.
"With proper expertise, overseas investors will definitely
become ideal traders of China's ABS products once regulations
are eased in the future," said ANZ's Zhao.
(Reporting by Lu Jianxin and Pete Sweeney; Editing by Nachum
Kaplan and Eric Meijer)