China to Let StanChart, Asset Managers Securitize Bad Loans

(Bloomberg) -- China is poised to more than double the number of firms allowed to sell securities with bad loans as their underlying assets, according to people familiar with the matter, as regulators boost efforts to help banks clear the soured debt from their books.

Authorities will add 22 more financial institutions, including the country's four national bad debt managers and Standard Chartered Plc, to a program that allows them to package non-performing loans as asset-backed securities, said the people, who asked not be identified as the plan is not yet public.

Standard Chartered will be the first foreign bank included and China Huarong Asset Management Co., Ltd., China Cinda Asset Management Co. Ltd, China Great Wall Asset Management Co Ltd and China Orient Asset Management Co Ltd. would be the first non-banking institutions added to the list.

First launched in 2016, regulators promoted the NPL-backed securities pilot as one way to free up lenders' balance sheets and shift bad debt to institutions that are better able to cope with the risk. About 47.1 billion yuan ($6.7 billion) of such securities have been issued since then, according to China Central Depository & Clearing Co.

China's build-up of bad loans has become a major point of weakness for the financial system as the economy cools. The outlook for banks remains challenging as efforts to boost growth and help struggling small businesses threaten to squeeze margins and lead to more bad debt.

The People's Bank of China and China Banking and Insurance Regulatory Commission did not immediately respond to faxes seeking comment. China Cinda and Huarong did not immediately reply to emails. Great Wall and Standard Chartered declined to comment. A representative for China Orient could not immediately respond.

China initially banned asset-backed securities in 2008 after the financial crisis and restarted securitization of NPLs for commercial banks in 2016. Six commercial banks were included in the first batch of the program before the list was expanded to 18 in 2017.

--With assistance from Evelyn Yu and Yinan Zhao.

To contact Bloomberg News staff for this story: Yuling Yang in Beijing at yyang329@bloomberg.net;Zheng Li in Shanghai at zli698@bloomberg.net;Zhang Dingmin in Beijing at dzhang14@bloomberg.net;Lucille Liu in Beijing at xliu621@bloomberg.net

To contact the editors responsible for this story: Sarah Wells at smcdonald23@bloomberg.net, ;Shiyin Chen at schen37@bloomberg.net, Sharon Chen, Jun Luo

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With assistance from Bloomberg