High-risk assets not under scheme
Print Edition
China will exclude high-risk assets from a plan to expand securitization and encourage cross-department regulations to minimize financial risks, the central bank said yesterday, echoing a Cabinet proposal to make better use of existing credit.
The People’s Bank of China said the time has come when the country “must accelerate credit asset securitization” to help banks improve the use of capital by allowing them to sell off some assets, according to a statement posted on the central bank’s website yesterday.
Packaging loans into securities to be sold to investors can improve the lending structure, lower capital requirements of banks, and offer a range of investment products, the statement said.
The statement was issued after the State Council, China’s Cabinet, on Tuesday pledged to expand the securitization trial to “activate” the use of credit.
The PBOC has told the country’s lenders to package their good-quality assets and to sell the resulting securities to investors in both the interbank market and exchanges, according to the statement. Banks can then use the funds from securities sales to support small firms, agribusinesses and infrastructure construction, it said.
“The move is essential in China’s economic restructuring and upgrading,” CITIC Securities said in a note yesterday. “Authorities may include more assets, such as the credit given to national-level projects and qualified local government vehicle loans, in securitization programs without lifting the total quota.”
China started the trial for securitization in 2005 and has issued 89.6 billion yuan (US$14.6 billion) of securitized products so far.
The trial was halted for three years after the outbreak of the 2008 global financial crisis. The program, restarted in 2012, has allocated 50 billion yuan in securitization quota. About 30 billion yuan has been used.
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