ICBC to conduct first ABS sale

Industrial and Commercial Bank of China (ICBC), China's largest commercial lender by market value, intends to offer its first batch of asset-backed securities (ABS) worth 3.59 billion yuan ($577.95 million) in the money market Wednesday, according to a statement the bank filed with the Shanghai Clearing Housing on March 20.

ICBC's ABS offer, which has been reviewed and approved by the China Banking Regulatory Commission (CBRC), is the latest step by a major Chinese lender to remove risky assets from its balance sheet and potentially free up more money to lend poorly-funded firms, Wu Hong, vice president of the China Banking Law Society, explained to the Global Times.

China first introduced ABS trading in 2005 as part of a trial program that allowed one of the country's three policy lenders as well as several major commercial banks to securitize their loans for placement with investors in the inter-bank market. The program was later suspended in 2008 due to concerns about the role ABS played in precipitating the world financial crisis.

Last May saw authorities restart ABS trading with an initial sales quota of 50 billion yuan and expanded coverage to include city commercial banks.

As bank loans from debt-ridden quarters expand, China's commercial banks are eager now to bundle their loans for sale in the financial market, Wu said.

The balance of outstanding loans from China's banks stood at 67 trillion yuan at the end of last year, with most of this amount going toward local government financing vehicles, property developers and companies bogged down by overcapacity, Shang Fulin, the head of the CBRC, said at a working conference in January.

For the moment, ABS development is a key strategy for domestic lenders to ease the risk pressures coming from their mounting loans, Liu Shiyu, deputy governor of the People's Bank of China, said at the 1st Nobel Economists Summit of China on March 18.

Unlike in the trial program conducted between 2005 and 2008, China's present ABS scheme allows participating lenders to securitize loans made to small- and medium-sized enterprises (SMEs), which as a group have historically struggled to secure credit from big banks, Wu added.

But with SME loans now eligible for inclusion in ABS products, more lenders may be willing to lend to these businesses as regulators introduce tighter restrictions on the banking sector, Wu explained.