China has relaxed its rules for the sale of asset-backed securities (ABS), making it easier for banks to transform some of the nation’s 85 trillion yuan (US$13.71 trillion) of outstanding loans into tradable notes.
Institutions no longer need to seek approval from regulators for each ABS sale, the People’s Bank of China said yesterday on its Web site.
Those licensed to sell ABS’ by the China Banking Regulatory Commission are to be able to determine the timing and location of the issuances after registering the amount of planned sales and their maturities with the commission, according to the new rules.
The new rules covering ABS sales on the and exchange-traded and interbank markets allow issuers to decide themselves how often they conduct sales and what the quotas would be.
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.
“It will cause an explosive growth of China’s ABS market,” Australia and New Zealand Banking Group Ltd Shanghai-based economist Zhou Hao (周浩) said of the new rules.
“It’s a very positive move for the banking system and the economy,” Zhou said.
Chinese banks sold a total of 269.1 billion yuan of securities backed by loans last year, compared with 15.8 billion yuan in 2013, according to data compiled by Bloomberg.
Issuances have been 33.1 billion yuan this year.
Sales might increase to between 1 trillion and 2 trillion yuan per year as a result of the rule change, Zhou said.
The rule change coincides with Premier Li Keqiang’s (李克強) pledge last month to “make better use of existing funds” to support economic growth, which moderated last year to the slowest pace since 1990.
The expansion of China’s ABS market also comes as the securities have attracted global regulatory scrutiny since the 2008 financial crisis, when loans to subprime home buyers in the US went bad.
China resumed approvals of ABS issuances in 2012 after having suspended an earlier trial in 2008.
“It’s far too early to worry about any US-style ABS risks in China,” Zhou said.
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