Moody's: Chinese securitization deals rise in Q4 2017, loan performance steady

Moody's Investors Service said on Wednesday that the issuance of Chinese securitization transactions for all asset classes rose in the fourth quarter of 2017 from a year ago, both in terms of number of deals and value, while loan performance was steady.

A total of 59 transactions with an aggregate volume of 324.5 billion yuan (US$ 51.25 billion) were issued between September 1, and December 31, 2017, under the credit asset securitization scheme managed by the China Banking Regulatory Commission and the People's Bank of China, four deals and 92.7 billion yuan more than the same period in 2016.

Securitization is the financial practice of pooling various types of contractual debt such as residential mortgages, auto loans or credit card debt obligations and selling their related cash flows to third party investors as securities.

Investors are repaid from the principal and interest cash flows collected from the underlying debt. Securities backed by mortgage receivables are called mortgage-backed securities (MBS), while those backed by other types of receivables are asset-backed securities (ABS).

Within this total, issuance for residential MBS exceeded all other asset classes, amounting to 96.4 billion yuan, the report said.

Moody's expects overall delinquencies to stabilize with continued economic growth, improving corporate profits and steady commodity prices.

In addition, the average 30+ days delinquency rate for outstanding auto loan ABS stood at 0.12 percent at the end of the fourth quarter of 2017, up from 0.10 percent for the previous quarter.

Moody's expects auto ABS delinquencies to remain at around current low levels throughout 2018, given that the overall environment is conducive to the stable performance of auto loans.

As for corporate loans, 11 collateralized loan obligations with a total portfolio of 47.1 billion yuan were securitized during the period, much lower than the 21 deals with a combined 89.2 billion yuan compared with the previous year.

Twelve auto loan ABS transactions with a total portfolio of 49.4 billion yuan were issued, five transactions more than the same period in 2016.

The ratings agency said that seven consumer loan ABS transactions with a total portfolio of 55.8 billion yuan were issued from September to December, compared with four deals and a volume of 9 billion yuan in the second quarter of 2017.

Ten non-performing loan ABS transactions were issued, backed by personal loans, small business loans and retail credit card debt. The total issuance amount was 6.8 billion yuan, securitizing 22.5 billion yuan of assets, Moody’s added.