ABS program to widen: paper

The China Banking Regulatory Commission (CBRC) is ready to expand the country's trial asset-backed securities (ABS) program, the 21st Century Business Herald reported Tuesday, citing sources close to the regulator.

According to the newspaper, China's top banking authority is prepared to approve a further round of ABS products and raise the quota on these securities to 200 billion yuan ($32.66 billion). The commission will also reportedly allow this next batch of ABS to trade on the Shanghai Stock Exchange (SSE). a move which will greatly enlarge the pool of investors trading these products.

The Herald's sources went on to say that the CBRC will direct the upcoming ABS offers, a change which will see it assume a role previously performed by the People's Bank of China.

Chinese financial authorities began experimenting with ABS trading in 2005, when 66.78 billion yuan in securitized assets were sold to investors under a pilot program. These trials were shelved in 2008 following the global financial crisis, only to be resumed again in 2012 with an initial quota of 50 billion yuan.

"A total of 200 billion yuan seems like a huge leap [from the 50 billion yuan quota offered last year], but it is actually not such a big move considering how many new players will be admitted to the market if these reports are true," said She Minhua, a financial sector analyst at Zhong De Securities.

ABS products are currently traded in the interbank market among a limited number of large financial institutions. She said that ABS trade at the SSE would promote liquidity and the development of these instruments.

"Banks benefit from ABS trading, which helps them remove risky assets from their balance sheets," said She, who explained that the trading of credit-backed securities allows these institutions to direct more capital toward lending and investment in other assets.

China's next ABS issuance is currently scheduled for August 23, when the Export-Import Bank of China is set to offer 1.04 billion yuan in ABS. It will be the first offer since March, when Industrial and Commercial Bank of China issued 3.59 billion yuan in securitized assets.