China launches NPL securitization

China has launched nonperforming loan securitization to encourage private capital to participate in the NPL market by breaking the old framework of using banks for bad asset disposal, which relies mainly on the four State-owned asset management companies.

Bank of China Ltd and China Merchants Bank Co Ltd issued their first-ever NPL-backed securities products last week since China restarted nonperforming asset securitization after halting the business in 2009.

Bank of China, the nation's fourth-largest commercial lender by assets, sold 301 million yuan ($46 million) of asset-backed securities, including 234.78 million yuan of senior tranche with a fixed coupon rate of 3.42 percent and 66.22 million yuan of equity tranche.

The senior tranche was 3.07 times oversubscribed, and warmly received by various institutional investors such as State-owned commercial banks, joint-stock commercial banks, fund management companies and securities companies.

The equity tranche was sold at a price that is 1 percent higher than the face value, BOC said in a statement.

"It's a good attempt for Bank of China to optimize the structure of assets and liabilities and to expand channels for the disposal of nonperforming assets," the statement said.

China Merchants Bank sold 233 million yuan of ABS backed by credit card NPLs, including 188 million yuan of senior tranche and 45 million yuan of equity tranche. The total original value of underlying NPLs is 1.58 billion yuan, which contains credit card loans to 60,007 individuals with the average loan size of 26,000 yuan.

The senior tranche was 2.28 times oversubscribed, and the equity tranche was oversubscribed almost two times.

"Relaunching NPL securitization has a significant meaning to the fostering of private capital to participate in the NPL securitization market and the acceleration of bad debt disposal via market-based solutions," said China Merchants Bank in a statement.

The effort will also help reduce the financial pressure on State-owned asset management companies, with a growing number of institutional investors joining the market, according to the statement.

jiangxueqing@chinadaily.com.cn