Chinese banks given nod to start asset-backed securities sales

The government has permitted 27 lenders to sell asset-backed securities through a streamlined registration system, financial market sources said on Jan 15 citing an official document issued by the China Banking Regulatory Commission earlier this month.

The 27 institutions, which are major joint-equity commercial banks and city commercial banks such as Industrial Bank Co Ltd and Ping An Bank Co, need only to register with the regulator to issue ABS products fromnowon. Previously, they had to apply to the regulators for a review and approval before they could issue asset-backed securities.

Niu Nan, general manager of the structured finance department of China Cheng Xin International Credit Rating Co Ltd, said other financial institutions including State-owned banks, foreign banks, auto finance companies and financial leasing companies are supervised by different departments of the CBRC and are expected to win similar approvals soon.

"The registration system will improve the banks' efficiency to issue asset-backed securities, which used to undergo complicated approval procedures that could take as long as a year. Now, the banks can float ABS products more frequently and choose when to make the issuance based on their needs," she said.

Various financial institutions floated 65 ABS products worth 277 billion yuan ($44.7billion) in the interbank market in 2014, a huge rise on the five products worth 19.26 billion yuan in 2012 when the government restarted a pilot program on asset-backed securitization.

Policy banks, large State-owned commercial banks and joint-equity commercial banks took more than 75 percent of the market share for asset-backed securities issued last year, according to are port released by China Cheng Xin International Credit Rating in December.

"We expect ABS products to maintain powerful growth this year. Financial institutions may issue asset backed securities worth 400 to 500 billion yuan for the whole year in the interbank market," Niu said.

She said that city commercial banks and rural commercial banks are likely to become major issuers of asset-backed securities this year.

CBRC officials did not respond to are quest for comments at the time of writing this report.

A source from one of the 27 banks said developing the ABS sector will have a positive effect on the bank by optimizing its deposit and loan business structure, improving asset liquidity, and diversifying financial risks. She declined to be identified because she is not authorized to speak to the media.

Zhou Jingtong, a senior economist with the Institute of International Finance at Bank of China Ltd, said asset-backed securitization will help commercial banks invigorate their existing assets, enhance their ability to extend credit, and improve the efficiency to use credit resources.

"With China's interest rate liberalization, banks can no longer make huge profits by attracting deposits and expanding loans. They have to find ways to keep the balance sheet steady without affecting their profits," Zhou said.

As asset-backed securitization has just started in China, he said investors do not need to worry that China may suffer a crisis similar to the subprime mortgage crisis between 2007 and 2009 in the United States where ABS products were overly developed.