Non-financial issuers to lead expansion of securitization market

China's securitization market will continue to expand in 2016, with non-financial institution issuers taking the lead, Fitch Ratings executives told chinadaily.com.cn.

Tracy Wan, senior director of Fitch Ratings' Structured Finance, said the slowdown of China's economy could have an impact on corporate borrowing. Less demand for loans might dampen financial institutions' interest in packaging their quality loans to securities and selling to the market. However, non-financial institution issuers don't have that problem.

China's securitization market closed 2015 with a record 593 billion yuan ($90 billion) of issuance, according to China Central Depository & Clearing Co Ltd. Financial institutions sold 406 billion yuan of securities, up 44 percent from a year ago; non-financial issuers sold 180 billion yuan of securities, a five-fold increase over a year earlier.

China has two separate securitization regimes at present: the Credit Asset Securitization (CAS) and Asset-Backed Specific Plan (ABSP) scheme. The CAS is used specifically for financial institutions and uses the special purpose trust structure under the Trust Law. The CAS regime is regulated by the China Banking Regulatory Commission and the People's Bank of China.

The ABSP, governed by the China Securities Regulatory Commission, is used by all non-financial institution issuers and therefore dominated by corporate issuance and are listed either on the Shanghai or Shenzhen Exchange.

"Unlike banks, who mainly rely on deposits as cheap funding source, corporations have to lend from banks, so they have more incentives to seek alternative sources, such as securitization," Wan said.

She said a crucial task for China to develop the market is to educate investors to let them know more about the products. Now when investors are looking for ABS, they are primarily focusing on the "name" of the issuers: big-name issuers' products are more popular, instead of looking at individual products' structure.

"Hopefully the increasing example of defaults in bond market would alert them on individual risk," Wan said.