China is considering steps that would make it easier for banks to issue asset-backed securities as Chinese Premier Li Keqiang (李克強) expands financing channels for small businesses.
The People’s Bank of China (PBOC) is studying a system in which lenders could register for a quota for two years and multiple issuances in the interbank market, people familiar with the matter said, asking not to be identified because the matter has not been made public.
That would mark a departure from the current arrangement, in which lenders must seek approval for every offering, they said.
Li is encouraging banks to make room on their balance sheets as he shifts the economy toward slower growth driven more by small companies servicing consumers than by traditional smokestack industries.
Chinese banks sold 18.9 billion yuan (US$3.09 billion) of asset-backed securities last month, up three times from the same month last year, as bad loans surged and companies squeezed by a crackdown on shadow borrowing sought fresh funds.
“We have seen continued effort from the regulators in simplifying and streamlining the process for issuance approval, review and registration in the past months,” said Vera Chaplin, a Melbourne-based managing director of structured finance ratings at Standard & Poor’s. “As the market develops and evolves, it is natural to reassess the tradeoff between the rigor of individually approving transactions and a more efficient process.”
Asset-backed securitization, in which lenders package loans into collateral for note sales, can help banks make room on their balance sheets for new lending. The practice has attracted global regulatory focus since the 2008 financial crisis, when loans to subprime home buyers in the US went bad. China resumed approvals in 2012 as part of steps to expand fundraising channels after halting the development in 2009.
The PBOC issued a document about the proposed rule changes to some banks early last month seeking their opinions, and wants to reach a decision as soon as possible, the people said.
China Business News newspaper also reported on the proposed changes earlier.
The new development should help arrangers and issuers time their transactions better, said Helen Wong, senior director of structure finance at Fitch Ratings.
“Instead of waiting for months for regulatory approval, issuers can come to the market when the yields are in their favor,” she said.
The China Banking Regulatory Commission, which also oversees the industry, gave 27 domestic lenders greater ability to issue asset-backed securities, people familiar with the matter said last month.
“With the deregulation and market self-administration scheme, it is possible to see more variety in assets and deal structures, and potential increase in issuance size,” Chaplin said. “This will highlight the importance of governance and operational capabilities of the market players, and the need for increased transparency.”
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