bodyType

customContents

entityId

entityUuid

articlePageQuery

filter

article

articleBaseAdvertisingInfoArticle

articleListArticle

articleSeoArticle

helpersCheckIsPostiesArticle

hooksArticleAcknowledgementGateOverlayArticle

hooksTrackPageViewArticle

hooksContentInterestArticle

articleLinkingDataContent

articleSchemaContent

liveArticle

advertZone

sentiment

contentLock

topics

types

sections

moreOnThisArticles

urlAlias

commentCount

sponsorType

authorLocations

authors

paywallTypes

corrections

displaySlideShow

multimediaEmbed

printHeadline

seriesContainer

socialHeadline

headline

flag

firstTopic

glossary

flattenTypeIds

publishedDate

additionalInfoBoxes

images

image

relatedLinks

relatedNewsletters

__typename

createdDate

sponsor

factSheets

series

disableOffPlatformContent

published

updatedDate

summary

subHeadline

body

keywords

copyrighted

customTimezone

liveContents

SCMP Reporter

The mainland bank wants approval from the State Council  to launch the investment product for domestic players

China Construction Bank (CCB) has applied to the  State Council for permission to launch the country's first residential mortgage-backed securitisation (MBS) deal.

If approved, it could open up a new fund-raising channel for mainland banks,  on the back of rapidly expanding residential mortgage lending.

CCB, which is trying to clean up its balance sheet in preparation for  a global share offering next year, has in the past three months enlisted Standard Chartered Bank's help in structuring the MBS  deal.

They are  forming an asset pool from CCB's residential mortgage portfolios in several major mainland cities for a pilot programme of a yet-to-be-determined size.

The resulting securities would be sold to domestic investors, banking sources said.

'They want to be the first [mainland bank to issue residential MBS in the local market],' said a banking source. 'They may do a pilot now and they will use it as an ongoing funding vehicle.'

The CCB plan was one of two securitisation proposals submitted by the People's Bank of China  to the State Council a few months ago.

The other was China Development Bank's (CDB) plan to securitise assets.

CCB mortgage lending executives and CDB officials declined to comment yesterday.

Securitisation typically involves the establishment of a special-purpose vehicle  that issues bonds to investors to fund the acquisition of a pool of assets - such as loan receivables from a bank. The cash flow generated from collection of receivables or liquidation of loan collateral is then used to make coupon and principal payments to bondholders.

A well-structured securitisation allows loan-originating banks to raise new funds and reduce their total risk-weighted assets - hence increasing their capital adequacy ratios.

Commonly used in western markets such as the United States, securitisation has been rare in China, partly because of the absence of regulations.

In June last year, China Huarong Asset Management sold domestic institutional investors one billion yuan of trust product backed by non-performing loans.

In April, China's largest commercial lender, the Industrial & Commercial Bank of China (ICBC), sold 820 million yuan of securities backed by loan receivables.

The ICBC transaction included some mortgage loans but was not a residential MBS deal.

Although CCB began lobbying for MBS in 1996, the idea has only recently gained urgency.

'Mortgage lending has only in the last couple of years grown into a sizeable market,' said a foreign bank analyst in Shanghai.

With mainlanders  being encouraged to buy their own property since the 1990s, Chinese banks' outstanding residential mortgage loans  ballooned to 1.17 trillion yuan by the end of last year, or 6.8 per cent of total lending, noted Chinese Academy of Social Sciences scholar Yang Tao in a report this month.



CCB seeks mortgage-backed securities