China is expected to kick-start a trial program that would allow banks to turn
loans into securities and free up funds for lending at a time when Beijing is
seeking ways to bolster growth.
The securitization program could remove as much as 50 billion yuan ($7.9
billion) of loans from balance sheets, according to senior Chinese banking
executives. Endorsed by China’s banking regulators and the Ministry of Finance,
it represents another step in China’s efforts to revamp its financial system
into one that relies more on market forces.
It also comes as Chinese authorities are stepping up efforts to fight a
deepening economic slowdown amid the European debt crisis, which has hurt
China’s exports. This month, China cut interest rates for the first time since
2008 and loosened controls on banks’ lending and deposit rates.
When economic growth slows, government leaders typically call on state-owned
banks to make loans to rev up activity. But this time, there are concerns about
banks’ own funding constraints as well as a reluctance by businesses to take out
loans when demand is uncertain.
By allowing banks to transfer a portion of loans off their books, the securitization initiative would help free up capital for the banks to lend more.