Chinese Banks Apprehensive to Offer Asset-Backed Securities

Published Date : Jun 02, 2015

Even though the Chinese government is trying to revive the loan-backed bond market in the country to boost the slow economy, the banks have further reduced loans over the past four months. In 2009, the sale of asset-backed bonds was banned by the Chinese regulators owing to their role in sparking the global financial crisis. Policy makers have broadened the securitization quota by 500 billion yuan to create positive environment for fresh lending. However, the lenders have cut offerings of asset-backed securities by 45% to 43.4 billion yuan. This can be attributed to the spurt in bad loans last quarter along with the weak economy which has highly affected the banking sector in the country. Industry analysts point out that the weak economy has made the banks hesitant to convert their high quality assets into debt securities.

With non-performing loans increasing up to 150 billion yuan in the first quarter of this financial year, China’s banking sector has become cautious. The People’s Bank of China has reduced the interest rates thrice since November to reduce some of the stresses in the financial system. Other regulatory changes have also been introduced to reduce the need for lenders to raise funds through asset-backed securities. 

However, banks face difficulty in attracting investors to asset-backed securities as their yields are lower than other investment products. Industry analysts point out that the lack of liquidity for these securities in the secondary market is also a problem for potential investors. Analysts also mention that apart from officially supporting for the securitization market, the regulators need to encourage banks to secure the non-performing assets.