China – Now Asia’s biggest securitization market
The securitization surge in China has seen a quantum jump in the first eight months of 2015 from $20.8 billion to $26.3 billion in the same period last year making it Asia’s largest securitization market, leaving behind Japan and Korea. The surge in the securitization volumes has been possible owing to the progressive changes in the Chinese regulations pertaining to securitization in the recent past. The recent reforms have led to expansion and quickening of lending and bundling of loans for refinancing purposes.
China’s economy has had its internal challenges with the economy going into recessionary phase. The securitization market in China has had a pulley effect reviving the Chinese economy from the clutches of non-existent growth.
China started the securitisation pilot project in 2005 but remained conservative through the global financial crisis of 2007. The securitisation program was revived in 2012 in China, however it is only in the last year that the regulatory reforms have led to the upsurge in volumes and enough traction to gauge global attention.
Some of the recent regulatory changes introduced by the Chinese regulators are as follows:
a. Approval system for issuance of securities on deal-by-deal basis has been replaced by a registration system in which the repeat issuers are free to issue Asset Backed Securities (ABS) within approved quota. Though new firm has to take permission from the regulatory authority, nevertheless this relaxation seems to be a major step in enhancing the securitization market.
b. Latest set of disclosure standard unveiled this year on securitization of non revolving consumer loans.
c. Increase in the limit of new securitization for 2015 to Rmb500 billion.
The typical asset classes in vogue in Chinese securitization market are as follows:
a. Equipment on lease
b. Real estate loan
c. Consumer loan
d. Auto Loan
Since Chinese government reopened the country’s securitization market in 2012, sponsors have been gradually expanding to auto finance companies and city commercial bank. Issuance of ABS has been a game changer in leading the securitization market among the developed countries of the world. Issuance from the financing units of car makers including Ford Motor Co. and Volkswagen AG has led behind the securities backed by the auto loans which now forms a smaller piece of the market. The growth of the infrastructure has contributed no less in boosting the economy of the country by channelising its capital through the means of various asset class of securitization.
Converging from the process of selling asset backed securities after being approved by deal on deal basis to freely sell the securities after registering with the regulators has made the entire process hassle free. Issuance of ABS in China has shot up dramatically to become the largest securitization market in Asia, and this year issuance had passed RMB269 billion (US$42.14 billion) as of the end of October.
Bankers believe that the domestic investor base in China will make the process of securitization more sustainable unlike other countries in Asia where issuers sell their asset-backed securities to the foreign investors alone. Owing to the impetus that the local investors feel more secured to invest in their home assets with which they are quite familiar, the securitization market in China will be more intensified in the upcoming years.
Reported by: Surbhi Mohata
Dated: 4th December, 2015