Markets | Mon Jul 25, 2016 2:51am EDT
Agricultural Bank of China Ltd , China's third-biggest lender, plans to sell a record 3.06 billion yuan ($464 million) worth of bad loan-backed securities this week under a government pilot scheme to quickly liquidate soured debt.
China's third sale of securities backed by non-performing loans (NPLs) since 2008 involves 10.7 billion yuan in troubled loans packaged as underlying assets, AgBank said in a filing to the national bond-clearing house late on Friday.
The assets include 1,199 secured loans to 204 borrowers operating in industries mainly including wholesale, manufacturing, real estate and transportation, the bank said in a prospectus.
AgBank will sell 2.06 billion yuan in a triple-A-rated senior tranche and 1 billion yuan in an unrated sub-prime tranche. Payments from the troubled loans would service these securities.
"Different banks have different asset portfolios and hence different types of NPL assets including credit cards, consumer loans, corporate and micro loans," said analyst Elaine Ng at Moody's Investors Service. "It will be good for ABS market diversity if there are more NPL securitisation from different banks."
Earlier this year, the government allowed six large lenders to issue a maximum of 50 billion yuan worth of asset-backed securities (ABS) with non-performing loans as underlying assets, adding a new way for the banks to offload bad debt, Reuters reported in February citing people close to the matter.
The six were AgBank, Industrial and Commercial Bank of China Ltd , China Construction Bank Corp , Bank of China Ltd , Bank of Communications Co Ltd and China Merchants Bank Co Ltd .
Bank of China and China Merchants Bank sold a much smaller amount of NPL-backed securities in May.
China Merchants Bank's asset portfolio comprised 60,007 borrowers' unsecured credit card receivables, while Bank of China's portfolio had 42 corporate borrowers and mostly secured loans, Moody's said in a research note in May.
Moody's analyst Ng said these publicly traded asset-backed securities products would promote market transparency, and that non-performing loan disclosure - as required by China's National Association of Financial Market Institutional Investors - would help investors better understand risk.
The build-up of troubled credit at Chinese lenders has shown little sign of abating as the world's second-largest economy battles problems such as high leverage in its corporate sector and excess industrial capacity.
Non-performing loans in China's commercial banking sector rose to 1.81 percent of total lending by the end of June, the highest since the global financial crisis of 2009.
It is widely believed that the bad debt burden of China's lenders could be much higher than official figures.
($1 = 6.6772 Chinese yuan renminbi) (Reporting by Shu Zhang in BEIJING and Umesh Desai in HONG KONG; Editing by Christopher Cushing)