Welcome the New Normal for the Development of Asset Securitization
-- Interview with General Manager Dai Xiaoyuan of the Investment Banking Department of Industrial Bank
[CAIXIN.COM] (Intern reporter Zhang Xinmeng)
“Why do banks need asset securitization? Is it unnecessary if a bank boasts an easy credit scale and sufficient capital?” On May 9, General Manager Dai Xiaoyuan of the Investment Banking Department of Industrial Bank (IB) indicated, at the “China Asset Securitization Leaders Forum” held by Caixin media, that banks would gradually realize the advantages of asset securitization and boost the business to grow bigger and stronger.
Against the backdrop that the current economy is confronted with big downward pressure, Dai Xiaoyuan indicated, securitization plays a role of increasing importance step by step. First, securitization is in favor of boosting economic restructuring, transformation and upgrading. To release credit resources by way of securitization is helpful to reduce capital consumption and credit concentration, and also provides tools for banks to deal with the risks of term mismatch. This reinforces the power of banks to provide credit support to the real economy.
Second, securitization is propitious for commercial banks to transfer their profit models. By securitizing credit assets, financial institutions can, without increasing the capital occupation, obtain loan service income and hold the return on investment in and income of commissions from asset-backed securities. This is helpful to improve the rate of return on capital.
Third, securitization makes for improving the market mechanism and enhancing the capability of risk identification. Securitization may bring into full play the role of investors in jointly judging risks and determining the capital price and decentralize the credit risks, which used to be concentrated in banks, to the financial market to an appropriate extent.
In addition, asset securitization may also help improve the credit structure, lend a better support to key areas and weak links. “Last year, IB developed a special issue of credit assets securitization program for green finance, releasing a total amount of RMB 3.5 billion, which was all invested in the new green industries.” GM Dai gave an example. In the process, the bank served as both the promoter and the loan service supplier to push the development of asset securitization.
“For all participating financial institutions, this business is a new one, to know which financial institutions should also have a way to go.” analyzed Dai. Now, the asset securitization in China is still restricted by the factor of dual-track interest rate system. As a result, the transmission mechanism between the credit market and bond market is still imperfect, and all market players including investors and promoters need to further their understanding about credit asset securitization; with insufficient standardization and normalization, the products of credit asset securitization are far from becoming mature and taking shape; with a small total market scale, the liquidity in secondary market is inadequate, and the basic market environment and relevant supporting management regulations should be improved constantly in practice, to name just a few.
The reference standard for risk pricing of investors is a difficult problem in the issuing process currently. Dai analyzed: “For instance, when making an investment decision, an investor decides the bid price not relying on the risk pricing principle but directly on the price of wealth management products in the market." Because now rigid cashing is not broken and the risk pricing system is not well-developed, investors usually cannot analyze the risks and returns of securitized products in a reasonable manner and make accurate investment judgment.
With the progress in market-oriented interest in China, commercial banks will confront further intensified competition in the future, and it will become a new normal in the market development to alleviate the debt cost pressure by way of asset securitization.How should commercial banks respond to the new normal of asset securitization? First, Dai believes, systemic planning, market-oriented operation and refined risk management should be taken as the main directions for the commercial banks to develop the securitization business in the future; second, securitized products should be designed in conformity with the market development rule and in the orientation of meeting market demands; third, the profit accounting and performance assessment criteria should be determined reasonably for branch offices, with a view to improving their enthusiasm in the securitization business.
IB began to participate in the first group of securitization pilot sites as early as 2005. In 2014, the bank released three issues of assets securitization programs, with a total scale of RMB 15.1 billion. In this year, three issues are reported for approval. Across the last year, there were 66 securitized products in total around China, with a total scale of nearly RMB 290 billion.
Dai pointed out that, as a product of deepening the financial reform, securitization would experience a progressive process objectively in its development, which is closely related to the macroeconomic policies and environment and the progress in financial market, and it would need to face some issues which should be improved and solved in the market development.