China to Expand Asset-Backed Securities Trial
The trial will be expanded as a way to “activate” the use of credit, China’s State Council said in a statement late yesterday. The People’s Bank of China has told the country’s lenders to securitize their good-quality assets and to sell the resulting securities to investors in the interbank market and exchanges, according to a statement from the central bank today.
“The expansion of the trial shows the government wants to make better use of existing credit to help support the economy,” said Xu Wenbing, an analyst in Shanghai at Bank of Communications Ltd., the nation’s fifth-biggest lender. “Not only the nation’s biggest banks but also smaller banks, and even non-bank financial institutions, may be allowed to securitize their loans.”
Chinese Premier Li Keqiang is liberalizing parts of the country’s financial markets after economic growth slowed to 7.8 percent last year, the least in more than a decade. Authorities will seek to prevent the securities from causing dangers in the financial system by excluding relatively risky assets in the trial, according to the State Council statement. The difficulty of assessing risk in bonds backed by loans was a major contributor to the global financial crisis.
The PBOC said China has come to a stage at which it “must accelerate credit asset securitization” as selling off some bank assets will help lenders better allocate their capital.
“It will permit the banks to manage their balance sheets better,” said Dariusz Kowalczyk, senior economist at Credit Agricole CIB in Hong Kong. “Given that bank balance sheets have expanded tremendously over the past several years, this is a positive, and a step forward.”
To contact Bloomberg News staff for this story: Xin Zhou in Beijing at email@example.com
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