China will scrap ABS quota for banks

Desperate need to provide more credit for weak economy.

China will allow more banks to issue asset backed securities (ABS) and the US$8 billion quota on this issuance will be scrapped, said informed banking sources.

The China Banking Regulatory Commission and the China Securities Regulatory Commission are said to be formulating new rules governing the expanded ABS. Sources said the government will, however, control the pace of the securitization program to prevent possible risks.

China revived its ABS program in May 2012. Its financial sector regulators set an initial quota that allowed banks to issue up to a combined US$8 billion in ABS. China Development Bank, a state-owned policy bank, sold US$1.6 billion of credit-backed securities last September, to reignite a program disrupted by the global financial crisis. ABS gained notoriety during the global financial crisis for the part they played in the U.S. subprime mortgage collapse.