China needs legal certainty for securitisation to grow

Author: Karry Lai | Published: 6 Dec 2018

Better liquidity and legal enforcement certainty are needed to support the development of the Chinese securitisation market.

Demand for auto asset-backed securities (ABS), consumer loans and residential mortgage-backed (RMBS) securities is booming in China, driven by consumer growth, infrastructure needs and bank capital constraints. Chinese banks issued RMB200 billion ($29 billion) of RMBS in the first half of 2018. Drivers for the securitisation market include a need for diversification in funding costs and the advantage of off-balance sheet financing.

But to further grow the securitisation market, a well-established legal system is also essential.

"For new markets, a lack of case law can be an impediment," Aaron Lei, senior director & analytical manager, structured finance ratings, S&P Global Ratings, told panelists at the IMN’s Asian Structured Credit Summit in Hong Kong. "A good understanding of how regulations interact...