Securitisation vehicle to tackle non performing loans in China
Chinese market has been reeling under pressure of huge debts for about a year and according to official figures, of such debts non-performing loans at the banks have reached Rmb1.27tn ($194bn) and loans potentially at risk rose to 2.89 trillion yuan last year, which means that the commercial banking sector's total troubled debts have exceeded 4 trillion yuan.. The reason for the same can be attributed to years of expansion which ultimately took its toll on the Chinese market and the market started decelerating 2014 onwards. The going is getting tougher as fresh infusement of debt by banks is on a backlog and the growth of the Chinese economy has dropped to a level which can be hailed as the lowest in the last 25 years. Thus with an attempt to tackle the situation China is considering securitisation of non-performing loans to boost its economy. The securitisation programme plans to bring in domestic as well as global investors by bundling and repackaging the non-performing loans.
China has granted six large banks quotas to issue asset-backed securities (ABS) with non-performing loans as underlying assets and thus providing lenders an opportunity to get rid of non-performing loans. This move has been made by the Chinese government to inject capital in the economy so as to lift China from one of the biggest debt shadow circumscribing it. The six banks are Industrial and Commercial Bank of China Ltd (ICBC) , China Construction Bank Corp (CCB) , Agricultural Bank of China Ltd (AgBank) , Bank of China Ltd (BOC) , Bank of Communications Co (BoCom) and China Merchants Bank Co. The lenders have been granted a total bad loan securitization quota of 50 billion yuan ($7.65 billion). Among the six banks granted quotas, BOC has moved the fastest for its first sales of ABS based on non-performing loans. The bank has finished its ABS rating and is awaiting approval from the banking regulator.
The rising heap of non-performing loans is huge reason of concern for any country and whether the initiative taken by China proves to be a route of escape from the grasp of non-performing loans will be interesting thing to watch.
Reported by - Kanishka Jain
Date: 04th March, 2016