New pilot securitisation measures in China that have been widely reported by official media include an exploration of covered bonds, according to Mayer Brown partners in Hong Kong, who said the move could align the country with others in the Asia-Pacific region.

People's Bank of China, Beijing

The China Securities Journal, which is sponsored by official government news agency Xinhua, on Friday quoted Zhou Xiaochuan, head of the People’s Bank of China, confirming recent reports that Chinese banks are involved in pilot programmes as the country seeks to boost asset backed securitisation.

Ben Sandstad and Joe KL Tam, partners at Mayer Brown, said in a legal update yesterday (Tuesday) that among measures being reported by Chinese media – in the absence of any official announcements – “on balance sheet structured financings, such as covered bonds, will be investigated”.

“The interest in covered bonds is welcome and would provide an additional funding option for PRC financial institutions (in addition to general senior debt and, under the relaunch, securitisation) and would align China with other jurisdictions in the Asia-Pacific implementing covered bond regulations (such as Korea and Australia) to provide financial institutions with access to credit markets and help reduce their reliance on government liquidity funding programmes,” they said.

South Korea’s Kookmin Bank launched the first covered bond from Asia, in May 2009, and Korea Housing Finance Corporation has since issued its own version. ANZ launched the first Australian covered bond in November 2011, shortly after the government introduced legislation.

The Monetary Authority of Singapore on Friday released a consultation paper setting out proposed rules for covered bond issuance by the country’s banks.

A first round of measures to promote securitisation in China was carried out in 2005. According to government statistics cited by Mayer Brown, 11 banks and financial institutions issued RMB66.783bn (Eu8.07bn/US$10.55bn) of ABS from April 2005 until December 2008, taking in asset pools including home mortgage loans, auto loans, SMEs and non-performing loans.

“However, with the US sub-prime debt crisis in 2008 and the ensuing global financial crisis, the CBRC (China Banking Regulatory Commission) ceased issuing approvals under the Securitisation Pilot Measures, causing the burgeoning market to stall,” said Sandstad and Lam.

Xiaochuan was quoted by the China Securities Journal as saying that the latest measures are “more stable” than previously.