PBOC clears way for asset securitisation

PUBLISHED : Saturday, 06 July, 2013, 12:00am
UPDATED : Saturday, 06 July, 2013, 3:30am

Beijing pledged to further reform capital markets to help redistribute liquidity in the financial system and cut the risk of a repeat of the lock-up in wholesale lending that sent shockwaves rippling through the country's financial markets late last month.

The People's Bank of China (PBOC) said yesterday it would push forward with plans to introduce credit asset securitisation into financial markets, which would help banks broaden their range of lending. Asset securitisation is a tool of structured finance in which various assets are pooled together and transformed into marketable securities.

"Securitisation of credit assets is a way that allows banks to revitalise existing credits," Xie Duo, director of the central bank's financial markets department, said at a media briefing.

If commercial banks were able to securitise their credit assets, they would have more room to provide financing to the market, in particular to support small- and medium-sized enterprises and the agricultural sector, Xie said. His comments echoed those in a State Council statement before the briefing that promised innovation in the financial sector to aid economic reform.

A trial of credit asset securitisation started in 2005, Xie said.

"Commercial banks now have enough experience to cope with possible risks arising from securitisation," he said. "It's time to move forward from being a trial to something routine."

Yang Jiacai, assistant chairman of the China Banking Regulatory Commission, said credit asset securitisation would likely add new risks to the financial market.

"We will closely monitor these new products," Yang said.

Noting the lingering concerns over shadow banking, Yang said wealth management products and trust products were strictly regulated.

"We can see shadow banking everywhere," he said. "What is important is regulating it well."

China's gradual moves towards letting markets set interest rates were jolted last month when interbank lending ground to a halt and wholesale borrowing costs soared in the wake of a liquidity squeeze engineered by Beijing.

The government has insisted since that it is determined to ensure stability in the financial sector and industry in general while pursuing economic reform.