Exclusive: China securitization plan expanded to include foreign banks - sources

Thu Oct 31, 2013 8:33am EDT
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By Hongmei Zhao

HONG KONG (Reuters) - Chinese regulators have expanded a pilot plan allowing banks to package loans into tradable securities to include foreign banks, sources said.

Chinese policymakers see securitization as a tool to shift risk away from the banking system to reduce the chances of a financial crisis as economic growth slows and bad loans rise.

Securitization would also help satisfy voracious investor demand for alternatives to the chronically weak stock market and frothy property sector.

Chinese Premier Li Keqiang told a cabinet meeting in late August that China would aggressively expand the securitization of credit assets.

The central bank launched a pilot program in 2005 to allow banks to package loans into bond-like securities known as collateralized loan obligations (CLO).

Authorities have moved slowly on the pilot program though partly in the knowledge that the collapse of collateralized debt, backed by U.S. mortgages, triggered the global financial crisis.

The CLO products available in China make up a tiny fraction of the overall loans market and the involvement of foreign banks will not change that ratio since they hold less than 2 percent of bank assets.

The pilot expansion will be limited to small-scale deals, two sources with direct knowledge of the plan said. Recent deals by domestic banks have ranged from 1-to-10 billion yuan ($164 million to $1.64 billion).   Continued...

Chinese Premier Li Keqiang speaks during a joint news conference with India's Prime Minister Manmohan Singh at the Great Hall of the People in Beijing October 23, 2013 file photo. REUTERS/Kyodo News/Peng Sun/Pool