Hong Kong-listed commercial lender China Zheshang has obtained approval from financial regulators for the issuance of a large volume of asset backed securities.
Xu Renyan, vice-president of China Zheshang, said at a press conference on Thursday that the China Securities Regulatory Commission (CSRC) has green lighted its issuance of 40 billion in asset-backed corporate bonds.
China Zheshang said that the use of asset-back securities would enable companies with liquid assets such as notes receivable and accounts receivable to pool them together and “connect to the market,” with the Hangzhou-headquartered lender responsible for providing intermediary services.
“Not only will this help companies to reduce financing costs, banks themselves will achieve deleveraging,” said Yan, noting that ABS are not loans, nor do they appear on bank balance sheets or serve as off balance sheet financial instruments.
Banks instead earn their profits on the price spread they access via the provision of intermediation services between borrowers and lenders.
The use of asset-backed securities can also help banks reduce maturity mismatch risk as well as their dependence on interbank financing, which has become a major bugbear for the China Banking Regulatory Commission.
China Zheshang is a sterling example, with investments comprising 45% of its 1.35 trillion yuan in assets at the end of last year, safely ahead of its loans which accounted for 32.75%.
80% of China Zheshang’s assets were in the form of accounts receivables, which is a convenient byword for interbank investment, which in turn encompasses asset management plans and the wealth management products of other banks as well as bonds from unlisted companies.
Regulators lend support to growth in asset-backed securities
Support from regulators has spurred booming growth in asset-backed securities over the past two years.
Last year a total of 842.1 billion yuan in ABS were issued across China, of which corporate bonds comprised 438.5 billion yuan, for a year-on-year leap of 114.90%.
While bankers such as Xu Renyan tout their role as a deleveraging device, analysts note that many issuers simply use in precisely the same way as standard bonds that actually increase leverage instead of effectively adjusting debt ratios.