Banks may get new option to sell NPLs
Print Edition
CHINA may allow banks to sell their non-performing loans as asset-backed securitization products this year as the state will add 500 billion yuan (US$81 billion) in new quota to the program, Moody’s Investors Service said yesterday.
Securitization refers to the practice of pooling debts like mortgages, auto loans, credit card debts and corporate loans to a third party as securities.
The domestic securitization market is now worth about 350 billion yuan.
The State Council, or China’s Cabinet, on Wednesday said 500 billion yuan in new quota will be added to the program this year, and the authorities will encourage trading of such products on securities exchanges as part of efforts to offer more investment options for investors.
“Banks may be allowed to issue securitization products with non-performing loans this year, which is a common practice in mature Western markets,” said Hu Jian, managing director of Moody’s structured finance group.
Although the move could reduce the pressure on banks’ asset quality, Hu cautioned that the “practice should be regulated, transparent, and well-priced.”
Non-performing loans have accumulated quickly in commercial banks as the NPL ratio rose to 1.33 percent by the end of March, up 0.11 points quarter on quarter.
The growth was already 70 percent of that in the whole of 2014 as slower economic growth continued to weigh on companies.
Hu said the move could not only reduce banks’ asset quality pressure, but also offer more investment options to investors with various risk appetite.
China launched the practice in 2005 but stopped it during the 2008 financial crisis.
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