Money

Central banker eyes growth in securitization

(Agencies)
Updated: 2011-04-28 15:01
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China needs to urgently securitize part of its huge stockpile of bank loans to help stimulate growth in the banking and financial sectors, a vice central bank governor said on Thursday.

The size of China's asset-backed securities and mortgage-backed securities could explode to 3 trillion yuan ($460.7 billion) in the next five years, nearly 45 times of the 67 billion yuan now, Liu Shiyu, a vice governor at the People's Bank of China, told a forum in Beijing.

"We have about 50 trillion yuan in outstanding bank loans. If we can securitize 5 percent of them in the coming five years, we can grow the market," Liu said.

The global financial crisis of 2007 and 2008 gave the securitization business a bad name because it had contributed to the meltdown in the US housing market.

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But Liu argued that banks and investors alike can benefit from more securitization: it will allow banks to set aside less capital for loan provisions, and individuals will have more investment choices.

Right now, Chinese savers have few places to put their cash apart from bank deposits, the stock market and the property market. The concentration of money in real estate investments has driven up home prices to record levels.

As part of a trial, China has created 17 asset securitization deals to date, issuing 67 billion yuan worth of securities based on mortgages and other loan assets, Liu said.

The world financial crisis that followed the collapse of the US housing market has made Beijing wary of embracing financial innovation and derivative products.

Even so, Liu said it is time for China to roll out securitization in a big way.

"It has never been so urgent to develop asset securitization," he said. "A trial program or even a bigger trial program is certainly not enough."

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