Central Bank Mulls over Loan Transfer Market

飞雪寒冰

The People's Bank of China plans to set up a national market for loan transfers to boost the liquidity of credit assets, a person close to the central bank told Caijing on Wednesday.


At a September meeting with several banks, the PBOC discussed patterning the new market, which is to be established within three years, after the inter-bank bond trading system, the person, who asked not to be identified, said.


The new market is also intended to strengthen the regulation of the loan transfer business - in which loans can be bought and sold by institutions.


The lack of a unified system for loan transfers has kept transaction costs high, helping keep institutional investors away from the current market, and leaving the banking system with all the credit risk, the source said. The current market also suffers from underdeveloped regulation and the absence of standardized contracts.

飞雪寒冰

Loan transfers were developed in China in 1998. In 2008, loan transfer volume was 800 billion yuan, or about US$117 billion, against a new loan total of 4.91 trillion yuan during that year.


The source close to the central bank said joint-stock banks accounted for 46 percent of the total loan transfer market in 2007, with finance firms at 14 percent.


A bank regulator, who asked not to be identified, said he does not expect the loan transfer market to expand in the short term as banks still derive much of their revenue from net interest income and may not want to depend too much on loan transfers.


Some technical problems could also hinder the development of a national loan transfer market, banking analysts said.


Banks are expected to require their transaction partners to sign non-disclosure agreements as a means of ensuring they do not lose their clients, a process which will increase transaction costs, they said.


Banks also have different loan rating standards, and the market will require unified rating criteria, they added.

飞雪寒冰

After loans surged to 7.74 trillion yuan in the first half in 2009, commercial banks have started to focus on generating liquidity from their outstanding loans, including loan transfers. They could also securitize the loans for packaging into trust or wealth management products.


Loan transfers also expanded loan totals of finance firms in September, a source close to a finance firm attached to a large state-owned enterprise told Caijing on Monday.


New lending by finance firms in September stood at 87 billion yuan, up 64.2 billion yuan from August, Caijing reported on Oct. 16.