By Dai Qi
China has tightened its rules on the asset management industry since last year with a series of policies coming into the spotlight, which hit the bond market harshly, but on the other hand, have brought new opportunities for Asset-Backed Security (ABS) despite their negative impact on private ABS, among others.
How much and how did policies influence the ABS development? What is the new trend of its products? And how to rate those products?
Three points to benefit the ABS industry
Chinese banking regulators issued rules in January this year which had an impact on private ABS, but on the other hand, boosted standardized ABS products including that released in the interbank and exchange markets.
Cao Menghui, who is in charge of the ABS business at China Merchants Securities (CMS), said on Tuesday at the Moody's & CCXI 2018 Mid-Year China Credit Outlook Conference that new regulations were expected to benefit ABS from three points in the mid and long-term period.
"On the supply side, standardized products are supported by regulators which means that they will adopt standard measures in dealing with off-balance sheet activities and the calculation of risk. This will support standardized ABS products," he said.
On the demand side, he thought that more investors were expected to turn to ABS because policies on non-standardized products do not constrain it.
Meanwhile, ABS will not be calculated in banks liquidity, which will benefit its development as well, according to Cao.
Cao predicted that the amount of interbank ABS would rise by about 50 percent this year in total compared to that of last year's, with the market value reaching up to nearly one trillion yuan.
Supply chain finance emerge as a new hot spot
"In 2017, consumer finance attracted the most attention on the ABS market of enterprises and accounted for one-third of all the products issued on the market. But since new regulations came about at the end of last year, the pace of its growth has slowed down, but it has continued a relatively large issuing volume," said Ma Yanhui, who is in charge of structural financing at CCXI, at the same conference.
He mentioned that instead, supply chain finance and receivables ABS have become new hot spots since 2018.
"The supply chain finance ABS was started by real estate companies like Vanke and Country Garden. This year, newcomers like Xiaomi, Didi and BYD have also had their trials in this area, which is a highlight," he said.
Regarding the rating of such products, Ma said they were more concerned about the company's credit and would pay attention to its belonging and concentrate on avoiding risks.
For receivables ABS products, which could be traced back to 2014, they will mainly investigate the credit background of the major assets, including the quality and dispersity of those primary assets, according to Ma.
