One of China's three government policy banks plans to sell 10 billion yuan worth of securitised loans in the fourth quarter. A source at China Development Bank (CDB) said its pilot programme would involve securitisation of government infrastructure loans from all over the country. 'While Chinese commercial banks are having difficulties with historical loan books weighed down by a lot of impaired assets, the Development Bank is establishing a precedent by taking good assets, packaging them, securitising them and selling them, I think it's a very good thing,' said Douglas Red, director of DLR Asia and an adviser to Chinese banks. The loan sales would not include any non-performing assets, despite CDB's application late last year to the State Council for approval to include them in its securitisation package. The bank was granted preliminary approval in March to launch the pilot programme, along with China Construction Bank (CCB), the country's third-largest lender. Loan securitisation does not exist at all in China, despite it being a fundamental tool for banks to maintain liquidity in more developed economies. The most common kind of securitised loan is made off the back of mortgages because of the low risk involved, but due to the lack of history and fears of overheating in China's property market, government-backed infrastructure debt is seen as a less risky option. Both CDB and CCB intend to enter the mortgage securitisation business but are still waiting for government approval. CCB is a joint venture partner with United States investment bank Morgan Stanley in China International Capital Corp, the likely vehicle for any future securitised loan issuance. 'Hopefully in the next three years or so we will start to see a lot of this activity from the commercial banks as well,' said Mr Red.