CHINA may allow its banks to issue asset-backed securities for the first time in four years to diversify risks in the financial system and also promote development of the bond market.

A brokerage source told Shanghai Daily yesterday that Guotai Junan Securities has been mandated to issue the loan-backed bonds for the Bank of Communications, the nation's fifth-biggest lender, and China Development Bank, one of the three policy banks. The move indicated that China is reviving loan securitization after halting the trail scheme in 2008 during the global financial crisis.

Shanghai-based BoCom is likely to be among the first banks to get approval to securitize 3 billion yuan (US$473 million) worth of collateralized loan obligation (CLO), the International Financing Review said on Tuesday.

Through CLO, lenders can issue securities that are backed by payments from bank loans.

BoCom refused to comment on the matter yesterday, but said it will release a notice if it got approval.

"The major risk of China's financial system is the dominance of the five biggest lenders, whose combined assets account for 46 percent of the entire industry," Li Daokui, former advisor to the Monetary Policy Committee of the People's Bank of China, said earlier.

"The solution to dilute such risk is to promote loan securitization and to develop the bond market," Li added.

Source:shanghaidaily