Bank of Communications (Bocom) is gearing up to issue a securities product backed by collateral loans as Beijing prepares to reopen the asset-backed securities (ABS) market after a three-year hiatus.
Banking regulators have been preparing to relaunch the ABS market with a total quota of 50 billion yuan (HK$60.7 billion). The country's biggest banks, including Shanghai-based Bocom, are vying for a slice of this pie, hoping to use securities products to hedge against loan defaults and raise fresh capital.
Three sources with knowledge of the matter said Bocom was poised to spearhead the sale of ABS products among its domestic rivals and expected to issue three billion yuan worth of the loan-backed product.
The mainland's fifth-largest bank admitted that it was actively preparing for the issue of the product, but would not comment on whether it would become the first lender to do so.
ABS products are created through a securitisation process, under which underlying assets or loans are pooled and turned into financial instruments that can be sold to general investors. These products, it is believed, will help banks and other financial institutions ward off bad-loan risks while allowing the issuers to raise funds.
But ABS products cannot be sold unless the issuers receive approval from the banking regulators. A pilot ABS programme was launched in 2005, when China Construction Bank and China Development Bank were allowed to issue the mainland's first batch of such products. Beijing stopped approving ABS products in 2009 in the wake of the US subprime mortgage crisis.
'The regulators are now aware of the positive role that ABS products play and have decided to reopen the market,' said Gang Meng, a ratings director at Dagong Global Credit Rating. 'The 50 billion yuan quota is still small, given the size of the country's financial market, but it's a sign that the regulators are thinking of liberalising the ABS market.'
The mainland's top bankers, including Yang Kaisheng, president of the Industrial and Commercial Bank of China, and China Merchants Bank president Ma Weihua, have been lobbying the regulators to ease restrictions on ABS products.
Mainland banks are now exposed to the risk of soaring bad loans following a lending spree between 2009 and 2010 that was launched to support an infrastructure-driven stimulus package.
As of April this year, outstanding loans granted by mainland banks were valued at 58 trillion yuan, making the 50 billion yuan worth of ABS products to be issued a fraction of the total loans.
The five biggest state-owned lenders, some mid-size commercial banks and policy lenders are eligible to apply to issue ABS products.
Analysts said the central government would fast-track approvals and reinvigorate the market if the ABS products sold well.
At the end of 2008, before the regulators pulled the plug on them, ABS products on the mainland were valued at 67 billion yuan.
The outstanding loans granted by mainland banks stood at this much, in yuan, in April