AgBank to sell record amount of securities backed by bad loans, lender says in filing

Agricultural Bank of China ( AgBank), the nation’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 plan.

China’s third sale of securities backed by nonperforming 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 will 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 Elaine Ng, an analyst at Moody’s Investors Service. “It will be good for assetbacked securities ( ABS) market diversity if there are more NPL securitization from different banks.”

Earlier this year, the government al- lowed six large lenders to issue a maximum of 50 billion yuan worth of ABS with NPLs as underlying assets, a new way for 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, China Construction Bank, Bank of China, Bank of Communications and China Merchants Bank. Bank of China and China Merchants Bank sold a much smaller amount of NPL- backed securities in May.

Moody’s analyst Ng said these publicly traded asset- backed securities products will promote market transparency, and NPL disclosure as required by China’s National Association of Financial Market Institutional Investors will 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.

NPLs 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.