China central bank considers more loan securitization

People’s Bank of China (PBoC) vice-governor Liu Shiyu told a forum in Beijing that China urgently needs to convert part of its bank loan stockpile into securities, Reuters reported. He said that securitizing 5% of China’s US$7.6 trillion worth of outstanding bank loans could grow the size of China’s asset- and mortgage-backed securities market up to US$460.7 billion in the next five years, up from its present US$10 billion. To date Beijing has remained cautious about such financial innovations given their role in contributing to the global financial crisis, but Liu argued that securitization would free up money for loan provisions currently trapped by reserve ratio requirements and give Chinese investors a selection of new products that might attract them away from speculation in stocks and real estate. As part of a trial program, China has already created 17 asset securitization deals to date, based on mortgages and other loan-secured assets. “It has never been so urgent to develop asset securitization,” Liu said. “A trial program or even a bigger trial program is certainly not enough.”