China to Allow More Banks to Issue Pilot Products Securitized by Non-Performing Assets
Yicai Global
/SOURCE : Yicai
China to Allow More Banks to Issue Pilot Products Securitized by Non-Performing Assets

(Yicai Global) Feb. 16 -- The number of banks allowed to issue products securitized by non-performing assets (NPAS) is set to rise this year. Regulators will permit the second batch of pilot banks to issue NPAS products soon, Yicai Global has learned. Last year, the first batch of pilot banks participating in the NPAS program were primarily leading state lenders, but this year the program will also include most joint stock banks and selected urban commercial lenders.

The NPAS program will widen to encompass several joint stock banks, including Industrial Bank Co. [SHA:601166], Shanghai Pudong Development Bank Co. [SHA:600000] and China Minsheng Banking Corp. [SHA:600016] and at least three urban commercial lenders, an employee with a rating agency told Yicai Global.

China Development Bank Corp. [SHA:018003] is also among the second batch of pilot lenders.

Under the Macro Prudential Assessment (MPA) system, lenders will reduce the pace of balance sheet expansion, thereby providing them with sufficient incentives to move assets off their balance sheets via asset securitization, a brokerage employee told Yicai Global. Regulators also support the development of NPAS products.

The volume of NPAS issues is set to increase further this year as more banks get the nod to sell such products, the brokerage employee said. Leading state-owned lenders will continue to account for the bulk of new issues, with public loans forming the underlying assets.

"The market is very enthusiastic about buying NPAS products now," a head of structured finance at a rating agency told Yicai Global. Since NPAS products have higher yields than standardized bonds, many foreign institutions, joint ventures and fund managers clamor for such high-yield high-risk subordinated debt. However, NPAS products issued last year were largely bought by the big four asset management companies.

In 2016, a total of 14 NPAS products worth CNY15.61 billion were issued in the domestic interbank market, per a statistical report from China Lianhe Credit Rating Co. Such products have five types of underlying assets, including corporate non-performing loans and those from credit cards, small and micro businesses, home mortgages and individuals, with non-performing corporate loans accounting for the bulk of these assets.

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