Deutsche Bank has signed a deal with China Cinda Asset Management to securitise non-performing bank loans (NPLs) with a book value of 2.55 billion yuan (about HK$2.42 billion). The collaboration, pending official approval, would mark the first time bad loans on the mainland have been securitised, Cinda spokeswoman Xiao Rong said yesterday. The securities would be sold to overseas investors, she added. Cinda is one of four state-owned asset management companies (AMCs) set up in 1999 to take over about 1.39 trillion yuan in NPLs from the big four state-owned commercial banks - the Industrial & Commercial Bank of China, Bank of China, China Construction Bank and Agricultural Bank of China. Under an agreement struck on Thursday, Deutsche Bank would be sub-contracted to dispose of the bad loans, Beijing's China Securities Journal reported yesterday. The two were looking to recover the bad loans in three to five years, the report said. Securitisation involves the pooling of a portfolio of loans. A special purpose vehicle is then established to buy the NPLs from the AMC and issue securities to investors. Compared to the way bad loans are normally recovered, securitisation allows AMCs to reduce their risk exposure to NPLs faster, said Brian Cheung, a partner at PricewaterhouseCoopers' corporate finance and recovery arm. 'Maybe it's also [more] cost-effective as well, because you are doing it on a larger scale rather than handling [and] resolving those loans by the AMCs themselves,' he said. But the mainland's stringent foreign-exchange regime is believed to have contributed to AMCs delaying their experimentation with NPL securitisation. At their inception, the four state-owned AMCs were given a 10-year mandate to dispose of NPLs transferred to their books. They have so far relied on instruments such as debt-to-equity swaps, restructuring, charge-offs, recoveries and agreed reductions in principal. Ratings agency Fitch described the progress of AMCs as 'sluggish' in a recent report. In the past three years, the four disposed of 301.4 billion yuan in NPLs, excluding debt-to-equity swaps, a report in the People's Daily said yesterday.