China policy bank sells first asset-backed securities to strong demand; 32 billion yuan in securitised products were outstanding end June; 4.2 trillion yuan in trust loans are often packaged into wealth management products

September 27, 2013 Leave a comment

China policy bank sells first asset-backed securities to strong demand

Wed, Sep 25 2013

SHANGHAI, Sept 26 (Reuters) – Agricultural Development Bank of China completed its first-ever sale of asset-backed securities (ABS) on Wednesday, as regulators push securitisation as a tool to enable banks to support the economy with new credit. ADB, one of China’s three policy banks devoted to non-commercial lending, sold 1.27 billion yuan ($207.5 million) worth of ABS, with each of the three tranches attracting strong demand from investors, official media reported on Thursday.China’s leaders have pledged to scale up a pilot project for securitisation of bank loans as a way to clear space on bank balance sheets for new lending, while also satisfying investor demand for higher-yielding fixed-income assets.

The senior tranche of the deal, worth 945 million yuan, was auctioned at an interest rate of 5.30 percent with subscriptions totaling 1.68 times the deal size, China Securities News reported on Thursday.

That compares to the official benchmark bank deposit rate of 4.75 percent for five-year time deposits, highlighting the attraction of such products to investors.

The middle tranche, worth 100 million yuan, was 2.4 times oversubscribed and auctioned at 6.74 percent, the paper said. The subordinate tranche, worth 229 million yuan, was 6 times oversubscribed, but the paper did not disclose the interest rate.

Analysts say securitisation could be a useful tool for diversifying credit risk outside the Chinese banking system. ABS could also help to draw demand for high-yielding investments away from opaque and illiquid wealth management products.

But they also cautioned that many obstacles remain to scaling up securitisation rapidly enough to have a significant impact on the financial system.

Only about 32 billion yuan in securitised products were outstanding in China at the end of June, clearinghouse data show. That compares with more than 56 trillion yuan in commercial bank loans, 27 trillion yuan in bonds, and 4.2 trillion yuan in trust loans that are often packaged into wealth management products.

Filed under Macro Trends

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