(11 September 2012 – China) Asset securitisation has relaunched in China, after being suspended three years ago, to help banks strengthen the country’s financial sector.China Development Bank late last week sold US$1.6 billion (A$1.5 billion) of credit-backed securities, China’s first ABS sale since the global financial crisis in 2008 made these products unpopular.
The government suspended the program in 2008 in response to concerns about the role derivatives based on United States mortgage-backed securities played in the global financial crisis.
An asset-backed security is a security whose value and income payments are derived from and collateralised (or ‘backed’) by a specified pool of underlying assets.
Financial circles worldwide are concerned that China’s giant state-controlled banking sector will be under heavy pressure from non-performing loans this year and next as a slowing economy drives more borrowers into default, heavily reducing bank revenues.
The China Banking Regulatory Commission requires major lenders to maintain a minimum capital adequacy ratio (CAR) of 11.5 percent.
Other banks need a minimum CAR of 10.5 percent, while the weighted average capital adequacy ratio (CAR) of Chinese banks stood at 12.9 percent at the end of June.
Analysts said Chinese banks will need at least a combined US$32 billion in additional capital to meet regulatory CAR requirements.