vinod_kothari_logo

Vinod Kothari Consultants

Delhi | Kolkata | Mumbai

Login | Registration
 

Climb on the Great Wall of Chinese Securitisation Market

 

Home > Securitisation > Securitisation News > Climb on the Great Wall of Chinese Securitisation Market

Securitisation market in China is growing comprehensively. In the first nine months of 2014, the issuance volumes issued under the China Banking Regulatory Commission (CBRC) and People’s Bank of China (PBoC) program totaled about RMB 170 billion, compared with RMB 100 billion between 2005 and 2013.

Experts believe that the major reason for such a spur in the issuances is due to the securitization pilot program launched in 2005. It is worth noting that the Chinese government in the race to reduce the reliance on banks for economic development has diversified the economic policy initiative to supplement the same. Therefore the government has had a strong incentive to support the development of the securitization market, which offers an alternate funding source and balance sheet management tool. Consequently, the government has introduced regulatory guidelines and other measures for the market, such as the pilot program.

Securitisation Pilot Program – A Catalyst 

In 2005 CBRC and PBoC jointly issued Administrative Rules for the Credit Asset Securitisation Pilot Program. The first asset credit securitization followed soon thereafter in December, 2005. However, the program was interrupted due to the global financial crisis of 2009.

History of asset securitization in China[1]

Date

Inter bank

April, 2005

CBRC and PBoC jointly issued Administrative Rules for the Credit Asset Securitisation Pilot Program and launch initial program with RMB 15 billion limit.

December, 2005

China development bank issues RMB 177 million of Asset Backed Securities (ABS) and China construction bank issued RMB 3017 million of Mortgage Backed Security.

April, 2007

Second Pilot Program launched with RMB 60 billion limit.

April, 2009

Securitised product issuance ceases in aftermath of global financial crisis.

May 2012

PBoC, CBRC and Ministry of Finance issue notice on matters concerning further expansion of Pilot Credit Asset Securitization Program and launch third pilot program with RMB 50 billion limit.

Date

Securities Companies

August, 2005

Pilot securitisation program was launched.

May, 2009

China’s Securities Regulatory Commission (CSRC) issues manual for Securities Company Corporate Asset Securitization Pilot Program.

March, 2013

CSRC issues Securities Company Asset Securitization Regulations, upgrading asset securitisation to a routine business process.

Why the Chinese market is flourishing?

Broadly there are three reasons for boost in Chinese securitization market –

  1. The government has broadened the economic policy initiative rather than depending upon banks for economic growth. Moreover, the regulatory guidelines and reforming measures like pilot program have even added feather to the cap.
  2. Due to development of better means of communication and globalization phenomenon, there is a better flow of information in relation to securitization market and risk associated with it.  This has enabled market participants to compare the merits and demerits of various markets and gain confidence in the Chinese securitization market.
  3. Issuer type and asset coverage are broadening. For instance – a series of auto loan securitizations were launched in China in March, 2014 and first residential mortgage backed securities since 2007 was launched in July, 2014.

China’s policy initiative in line with global practices –

The administrative initiatives are consistent with the global markets. The Chinese regulators are settling to prepare a local market that operates at global standards. For instance, the pilot ­­­program by the PBoC and CBRC has introduced a risk sharing requirement for securitization originators to hold atleast 5% of new issuance throughout the life of a transaction. This requirement is either under planning process or already been introduced in other foreign markets.

Future Prospects –

The Chinese securitisation market will continue to grow but experts believe that the regulators might move to a cautious approach in further developing the market, in the times to come. Regulators may focus on aligning the products with the government’s economic and financial market reform initiative, instead of simply providing new financial instruments.

The Chinese policymakers may employ securitisation in a way that provides a shield to the economic development of the country and side by side lead to a formation of an effective financial market management strategy.

 


[1] https://www.nri.com/global/opinion/lakyara/2013/pdf/lkr2013176.pdf

Reported by: Mohit Shaw

17th December, 2014

 

Other Publications - 

Our other write ups on similar topics can be viewed here.

 
facebook_icon facebook_icon