China relaxed rules for the sale of asset-backed securities, making it easier for banks to transform some of the country’s 85 trillion yuan ($14 trillion) yuan 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 today on its website. Those licensed by the China Banking Regulatory Commission to sell ABS will be able to determine the timing and location of the issuances after registering the amount of planned sales and their maturities with the CBRC, according to the new rules.
China’s central bank was studying a system in which lenders could register for a two-year quota and multiple ABS sales, people familiar with the matter said in February. The rules announced today covering ABS sales on the interbank and exchange-traded markets said issuers can decide themselves how often they conduct sales and what the quotas will be.
The rule change coincides with Premier Li Keqiang’s pledge last month to “make better use of existing funds” to support economic growth, which moderated last year to the slowest pace since 1990. 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,” Zhou Hao, an economist at Australia & New Zealand Banking Group Ltd. in Shanghai, said of the new rules. “It’s a very positive move for the banking system and the economy.”
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. Year-to-date, the issuances have been 33.1 billion yuan in 2015.
Sales may increase to 1-2 trillion yuan a year as a result of the rule change, Zhou said.
Under the old system, banks applying to issue ABS had to go through an examination and approval system that could take months, a key factor hindering growth of the ABS market.
Expansion of China’s ABS markets also comes as the securities have attracted global regulatory scrutiny since the 2008 financial crisis, when loans to subprime home buyers in the U.S. went bad. China resumed approvals of ABS in 2012 after having suspended an earlier trial in 2008.
“It’s far too early to worry about any U.S.-style ABS risks in China,” ANZ’s Zhou said.
In a separate statement today, the PBOC reiterated that it will maintain sufficient liquidity and ensure “reasonable growth” in credit and social financing, while increasing the share of direct financing and lowering financing costs.
— With assistance by Xin Zhou, and Judy Chen