China's NPL securitization market shows solid performance: Moody's

An employee counts yuan banknotes at a bank in Huaibei, Anhui province, Nov 25, 2016. [Photo/Asianewsphoto.com]

BEIJING - Performance of China's non-performing loan (NPL) securitization market has been solid so far, but its performance history is limited and uncertainty exists in relation to future collection, global rating agency Moody's said Tuesday.

"Performance has been solid, according to available trustee report data on collections, liquidity reserves, pricing discounts and recovery expenses," said Jerome Cheng, Moody's senior vice-president and manager.

"However, just 15 of the 20 NPL deals outstanding as of June, none of which we rate, have issued trustee reports as of now, with just one or two reports available for the majority of those 15 transactions," according to Georgina Lee, Moody's assistant vice-president and analyst.

Moody's made the conclusions in its just-released report titled "NPL Securitization - China: Chinese NPL deals show solid performance, but short history clouds future."

The report is the second in Moody's series of reports on the Chinese NPL securitization market, with findings on performance based on an analysis of four attributes: actual collections, revised projections, expenses, and expected recoveries.

However, given the deals' limited performance history, and the limitations that exist in the performance data reported, it is highly uncertain whether future collections will continue to exceed initial projections going forward.

Securitization allows banks to divest a wide range of NPLs, ranging from granular consumer finance portfolios to concentrated corporate loan portfolios.

It provides flexibility and liquidity for banks to remove their NPLs, especially retail NPLs. Existing regulations ban financial institutions from selling their retail NPLs to distressed asset management companies, but there are no such restrictions on securitizing these NPLs, according to Moody's.