Agricultural Bank of China (ABC) - one of the People's Republic's Big Four' state-owned commercial banks - last week announced its intention to begin a trial securitization program later this year. The bank, which manages 13% of China's banking assets, believes ABS will boost management practices and raise capital efficiency.
In a statement issued to local media, the Beijing-headquartered bank said: "Selling asset-backed securities is a key issue on the lender's products innovation schedule this year. It is significant for our restructuring and will improve our competitiveness to fight against other players."
According to ABC, assets originated by branches in the provinces of Zheijang and Jiangsu will be securitized. If the pilot deal is successful, assets from other branches will also be securitized.
The bank did not specify what assets would be securitized, the likely timing and size of any deal, or whether it has appointed a financial advisor for the program. Several heads of Asian ABS at foreign banks contacted for comment said ABC has not yet approached them.
What is certain is the urgent need for ABC to restructure in preparation for a planned listing and to cope with the onset of foreign competition in China's financial services industry.
While its three state-owned rivals - Bank of China, China Construction Bank (CCB) and Industrial Bank of China - have managed to reduce their non-performing loan ratios to less than 5.5%, ABC's bad loans still accounted for 26.31% at the end of 2005, equivalent to $87 billion. No stock exchange listing will be possible until that figure approaches the industry average of 8.9%.
Furthermore, it will be interesting whether an ABS deal will attract the same sort of positive sentiment achieved by the first two state-supported pilot securitizations issued by CCB and China Development Bank (CDB) - the state-linked policy bank - at the end of 2005 (ASR, 01/09/06).
CCB attracted orders from 51 institutions for its RMB3.1 billion ($371.6 million) MBS offering, while CDB secured bids from 71 accounts for a RMB4.3 billion infrastructure loans CLO.
CDB recently confirmed plans for a RMB5.8 billion follow-up offering, expected to be launched shortly.
Aside from banks, securitization is deemed an attractive means to raise funds from the corporate sector in China. Several telecoms and power companies are lining up deals, eager to follow the example of China United Telecommunications, which completed a RMB3.2 billion short-term ABS in September (ASR, 09/12/05).
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