CHINA’S central bank has relaxed rules for the sale of asset-backed securities (ABS), making it easier for banks to transform some of the country’s 85 trillion yuan (US$14 trillion) yuan in outstanding loans into tradable notes.

    China has cautiously encouraged greater use of ABS in recent years to provide firms with more channels to raise funds and deepen the country’s financial market.

    Institutions no longer need to seek approval from regulators for each ABS sale, the People’s Bank of China said Friday. Those licensed by the China Banking Regulatory Commission (CBRC) to sell ABS will be able to determine the timing and location of the issuances after registering the amount of planned sales and their maturities with the CBRC, according to the new rules.

    ABS sellers are also encouraged to provide financial information to the public about the assets underlying their securities, the central bank said.

    The rule change coincides with Premier Li Keqiang’s pledge last month to “make better use of existing funds” to support economic growth, which moderated last year to the slowest pace since 1990. Asset-backed securitization, in which lenders package loans into collateral for note sales, can help banks make room on their balance sheets for new lending.

    “It will cause an explosive growth of China’s ABS market,” Zhou Hao, an economist at Australia & New Zealand Banking Group Ltd. in Shanghai, said of the new rules. “It’s a very positive move for the banking system and the economy.”

    Chinese banks sold a total of 269.1 billion yuan in securities backed by loans last year, compared with 15.8 billion yuan in 2013. Year-to-date, the issuances have been 33.1 billion yuan in 2015.

    Sales may increase to 1-2 trillion yuan a year as a result of the rule change, Zhou said.

    Under the old system, banks applying to issue ABS had to go through an examination and approval system that could take months, a key factor hindering growth of the ABS market.

    Simplifying business procedures and cutting red tape is a key plank in China’s plans to reorient the world’s second-biggest economy to give free markets a bigger role.

    By reducing State planning, authorities hope to increase the efficiency of investment in the country.

    Expansion of China’s ABS markets also comes as the securities have attracted global regulatory scrutiny since the 2008 financial crisis, when loans to subprime homebuyers in the United States went bad. China resumed approvals of ABS in 2012 after having suspended an earlier trial in 2008.

    “It’s far too early to worry about any U.S.-style ABS risks in China,” Zhou said.

    (SD-Agencies)