Beijing's crackdown on credit card issuers seen as positive by Fitch
Ratings agency Fitch says tightening of controls a positive sign for the asset-backed securities market amid rise in delinquent credit card debt
Tighter regulation over mainland credit card issuers is a healthy sign for development of the country's asset-backed securities market, ratings agency Fitch said yesterday, just a week after the regulator issued a ban on securitising credit card debt.
Delinquent credit card debt hit 32.1 billion yuan in the second quarter of the year - the fifth straight quarter of rising delinquency - representing 1.57 per cent of the mainland's outstanding credit card debt, according to Fitch.
Mainland media last week reported the CBRC had halted the issuance of credit card asset-backed securities and analysts confirmed the ban was related to the high-risk nature of credit card debt.
An analyst at ratings agency China Chengxin International said there was a mismatch in the maturity period of credit card debt and the time required to gain approval for issuing the products. Credit card debt is short-term yet banks need approval from the CBRC and the central bank to issue securitised products, a process that could take months.
Beijing has big plans for securitisation of debt at banks as a means of loosening up balance sheets so that banks can lend more this year as the economy slows.
Earlier this year, the banking regulator and the People's Bank of China issued a notice urging lenders to create a larger mortgage-backed securities market. Commentators writing in the at the time said that up to 1 trillion yuan in mortgage loans should be securitised.
The halt to credit card asset-backed securities drew some concern over whether the market would grow as planned.
Regulators have at times appeared highly risk adverse, allowing banks to securitise only low-risk assets.
To date, only China Merchants Bank has been allowed to issue credit card asset-backed securities.
"They definitely want to see the market grow but they want it to grow at a measured pace," said Hilary Tan, a director at Fitch. "The regulators are quite risk averse and the rising credit card delinquencies may not make a good case for allowing banks to issue credit card [asset-backed securities] at this time."
Mainland regulators opened the market to asset-backed securities in 2005 but shut it down in 2008 in response to the global financial crisis, which was triggered by such securities. The market was reopened in 2012 but has seen limited growth until this year.
