China authorizes loan-backed securities

China has reopened the gate on loan-backed securities, after suspending a trial in the aftermath of the global financial crisis.

China's central bank, the People's Bank of China, has authorized a 50 billion yuan ($7.85 billion) quota for the country's lenders to securitize their loans. Lenders are required to submit securitization plans for regulatory approval. The quota is expected to be fulfilled by year-end and more quotas are likely to be authorized in the future.

China's loan-backed securities trial started before the 2008 global financial crisis. However, the trial was suspended after financial derivatives such as asset-backed securities were seen as the culprit of the crisis.

The country first launched a trial in 2005, when China Development Bank issued bonds based on 51 loans totaling 4.7 billion yuan.

The quota is a pittance compared with the banks' total assets, which were at 120 trillion yuan at the end of the first quarter, but it opens a new path for lenders to get rid of non-performing loans and liquidate assets.

gaochangxin@chinadaily.com.cn