The Industrial and Commercial Bank of China (ICBC) is to become the first state bank to securitise its bad loans, reported the Financial Times. It will issue domestic bonds backed by Yn3bn of non-performing loans (NPLs). The ICBC plan, which has yet to be approved by regulators, involves a tranche of NPLs from its Ningbo branch, the interest on which is to be paid with the income from the recovery of the loans. The bonds will be offered to Chinese companies and investors, but not banks and insurance companies.
According to Credit Suisse First Boston, securitisation is preferable to an outright sale because it enables Chinese banks to retain some of the income from the recovery of the loans over and above what is needed to pay the bond's interest and principal. ICBC's bad loans fell by Yn36bn (or 4.3 percentage points) to 21.5 per cent of total loans in the nine months to September.