China residential mortgage securitization to gain traction: Fitch

BEIJING - Residential mortgage-backed securitization (RMBS) in China will become more popular in the next few years as more banks use RMBS for capital-relief purposes and funding diversification, Fitch said in a report on Tuesday.

According to Fitch, six Chinese banks have obtained approval from the People's Bank of China, the central bank, for shelf registration for RMBS totalling 215 billion yuan ($32.8 billion). Their shelf registrations are valid for two years.

RMBS have been slow to develop, but picked up in 2015 when eight RMBS transactions totalling 26 billion yuan were issued. Before that, there was one transaction in 2014, following a hiatus of seven years after a transaction in 2007. Fitch received many queries from international investors about this growing sector.

China's asset securitization products rose last year as banks were provided greater operational flexibility in liquidity and capital management.

Asset securitization, generally, is the transformation of non-liquid assets into securities, for example into instruments that can be traded on the capital market.

The issuance of asset securitization products amounted to more than 593 billion yuan ($89.8 billion) in 2015, a 79-percent increase from 2014, China Central Depository & Clearing (CCDC) said last month.

Outstanding asset securitization was 717.9 billion yuan as of the end of December last year, surging 128 percent year on year from 2014, according to the CCDC report.

CCDC predicted that the asset securitization market will hit around 1 trillion yuan in 2016.

Securitization in China officially started in 2005 when financial regulators launched a pilot program allowing banks to package loans into tradable securities.

The program gained little traction in the first few years and was shelved with the onset of the global financial crisis in 2008 as products like mortgage-backed securities were pinpointed as causing the havoc.

The program restarted in 2012, on the back of policy support that streamlined operations.