China Securitization Will Further Advance When Hurdles Are Cleared

Moody's says that the Chinese securitization market could gain valuable traction once a number of hurdles are cleared. Barriers to the market's growth were discussed during the China Securitization Forum Annual Conference in Beijing from April 7-9, 2016.

"China's economy is gradually transforming into one that is driven by consumption rather than exports," says Jerome Cheng, a Moody's Senior Vice President. "As a result, consumption-related assets such as credit card receivables will become abundant in the market."

At the end of 2015, aggregate credit card limits in China totaled RMB7.08 trillion, of which RMB3.09 trillion were outstanding, according to the People's Bank of China. The amount of outstanding receivables had increased 32.05 percent over 2014, signifying the ABS potential in the market.

In order for China to aspire to an established and scalable market similar to the U.S., a number of building blocks must be in place, according to Moody's. These include improving standardization and transparency in ABS, which the agency says are crucial for enhancing not only the initial credit analysis of securitizations at closing, but also the ongoing monitoring of outstanding deals.

Other proposed advancements include greater liquidity in the secondary market, a well-established investor base to ensure the placement of ABS, repeat issuers that provide ongoing and consistent issuance, and the necessity of lower funding costs, alternative funding sources and better investment returns.

However, a critical issue that still persists in the market is the availability of suitable assets to securitize, as pointed out by Moody’s. On the investor side, Moody's believes that a diversification of the investor base will be required to redistribute the risk, as banks are both the main issuers and investors in securitizations in China.

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