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5th April, 2012:
Securitisation has been used in a very controlled way in China as compared to its co-countries in Asia who have successfully raised capital through asset-backed securitization in the past. There have been several attempts in the past to kick start securitisation in China as well, but it has remained docile for years. To add on to its inactivity in the securitization market, China has been deferring its securitization programs since 2005, even though the administration measures for Securitization of Credit Assets on a Pilot basis were promulgated by The People's Bank of China (PBOC) and China Banking Regulatory Commission (CBRC) in 2005. After a long hibernation, PBOC has announced plans to launch a pilot program in 2012 which would allow some commercial lenders to securitize assets.
The program is expected to involve up to $7.9 billion of securitised assets, with eligible assets to include among other assets loans to local Chinese government financing vehicles and small and medium-sized enterprises. The pilot program transactions will likely trade over-the-counter in China's interbank bond market.
Keeping in view China's huge demand for capital the prospect for Asset Securitization within China is immense. The country's ongoing expansion to modernize its infrastructure has pressured it to continually seek new sources of capital. Consequently, China needs alternate sources of capital, because Chinese banks are straddled with huge non-performing loans provided to state industries.
There might be ambiguity with the banks in the absence of specific loan classification criteria and they might end up mixing bad and good loans in the loans to be securitized. In the absence of any specific guidelines with regard to the implementation of the pilot program, it would be too early to comment on the effectiveness and credibility of the proposed pilot securitization program.
To know more about Securitisation in China see our securitisation country page here
[Reported by: Abhijit Nagee]