ICBC to sell $1.8b of asset-backed securities

Industrial and Commercial Bank of China Ltd (ICBC), the country's largest listed bank, plans to sell 11.3 billion yuan ($1.83 billion) of asset-backed securities (ABS), according to a memo obtained by Reuters.

ABS are securities created by packaging together a pool of underlying assets, typically small loans that are difficult to sell individually.

China is expanding asset securitization on an unprecedented scale as the government looks to increase bank liquidity without expanding the money supply.

The memo said the securities will be backed by an underlying asset pool drawn from loans to the railway and transportation sector and will be divided between an AAA-rated senior tranche, which accounts for 92.6 percent, and a junior tranche.

The release date has not yet been determined.

"The underlying asset quality is very good, borrowers will be those in state-supported key industries," sources said.

Borrowers include China Railway Construction Corporation (CRCC) and its subsidiaries, as well as firms established by CRCC together with provincial governments.

ICBC did not respond to several calls seeking comment.

At the end of 2013, Chinese financial institutions had issued a combined 140.9 billion yuan ($23 billion) of ABS products since the program was launched in 2005, according to media in China.

The country's banking regulator started to manage issuances of ABS through a registration system in November, simplifying the process.

Chinese banks given nod to start asset-backed securities sales

The government has permitted 27 lenders to sell asset-backed securities through a streamlined registration system, financial market sources said on Jan 15 citing an official document issued by the China Banking Regulatory Commission earlier this month.

The 27 institutions, which are major joint-equity commercial banks and city commercial banks such as Industrial Bank Co Ltd and Ping An Bank Co, need only to register with the regulator to issue ABS products fromnowon. Previously, they had to apply to the regulators for a review and approval before they could issue asset-backed securities.

Niu Nan, general manager of the structured finance department of China Cheng Xin International Credit Rating Co Ltd, said other financial institutions including State-owned banks, foreign banks, auto finance companies and financial leasing companies are supervised by different departments of the CBRC and are expected to win similar approvals soon.

"The registration system will improve the banks' efficiency to issue asset-backed securities, which used to undergo complicated approval procedures that could take as long as a year. Now, the banks can float ABS products more frequently and choose when to make the issuance based on their needs," she said.

Various financial institutions floated 65 ABS products worth 277 billion yuan ($44.7billion) in the interbank market in 2014, a huge rise on the five products worth 19.26 billion yuan in 2012 when the government restarted a pilot program on asset-backed securitization.

Policy banks, large State-owned commercial banks and joint-equity commercial banks took more than 75 percent of the market share for asset-backed securities issued last year, according to are port released by China Cheng Xin International Credit Rating in December.

"We expect ABS products to maintain powerful growth this year. Financial institutions may issue asset backed securities worth 400 to 500 billion yuan for the whole year in the interbank market," Niu said.

She said that city commercial banks and rural commercial banks are likely to become major issuers of asset-backed securities this year.

CBRC officials did not respond to are quest for comments at the time of writing this report.

A source from one of the 27 banks said developing the ABS sector will have a positive effect on the bank by optimizing its deposit and loan business structure, improving asset liquidity, and diversifying financial risks. She declined to be identified because she is not authorized to speak to the media.

Zhou Jingtong, a senior economist with the Institute of International Finance at Bank of China Ltd, said asset-backed securitization will help commercial banks invigorate their existing assets, enhance their ability to extend credit, and improve the efficiency to use credit resources.

"With China's interest rate liberalization, banks can no longer make huge profits by attracting deposits and expanding loans. They have to find ways to keep the balance sheet steady without affecting their profits," Zhou said.

As asset-backed securitization has just started in China, he said investors do not need to worry that China may suffer a crisis similar to the subprime mortgage crisis between 2007 and 2009 in the United States where ABS products were overly developed.

Money supply growth fails to maintain momentum

Money supply growth remained tight in China during December with lenders extending far less credit than in November, reflecting the country's "new financial normal", experts said on Thursday.

According to data released by the People's Bank of China, the central bank, China's broad M2 money supply measure grew 12.2 percent in December, far below market expectations and down on the 13.6 percent growth in M2 recorded in 2013.

During the period Chinese lenders disbursed 697.3 billion yuan ($112.55 billion), central bank data showed on Thursday.

New yuan loans for the year rose by about 10 percent to 9.78 trillion yuan from 8.89 trillion yuan for 2013.

"The slowdown in M2 money supply has reflected－in terms of monetary operation－the restructuring of the Chinese economy, the narrowing of off-balance-sheet financing, the slowdown of expansion of the sectors that have excess capacity, and the tightening of regulations in the interbank business," said Sheng Songcheng, head of the statistics and analysis department of the PBOC.

Other features of the new financial normal include the decrease in funds outstanding for foreign exchange, the narrowing of the ratio of current account surplus to GDP, and changes in the central bank's ways of injecting money into the market, Sheng said.

As of Dec 31, funds outstanding for foreign exchange stood at 27.07 trillion yuan, an increase of 641.1 billion yuan, compared with a much larger growth of more than 2.7 trillion yuan in 2013.

The significant drop in growth of funds outstanding for foreign exchange has also changed the way that the PBOC used to inject base money into the market by soaking up foreign exchange liquidity, putting huge downward pressure for the growth of money supply. It is one of the main reasons for the slowdown in M2 growth last year, he said.

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