Restarting securitization could be helpful for China's banks

The Wall Street Journal reported on how restarting securitization would be helpful for China's banks as it would provide them with liquidity and reduce their need for capital.

True, but who would buy securities backed by their loans without complete disclosure of all the relevant information.  This includes, but is not limited to, observable event based reporting on all activities like payments or delinquencies involving the underlying collateral before the beginning of the next business day.

Without this information, buyers of these securities would be blindly betting.  When buyers did this with sub-prime mortgage backed securities they lost trillions.

The restart of asset securitization, especially loan securitization, will help Chinese banks tackle liquidity challenges under the Chinese version of the Basel III capital requirements that will take effect next year, ICBC Vice President Li Xiaopeng said Sunday. 

Given slowing profit growth this year and weak domestic capital markets, Chinese banks face increasing challenges to meet capital requirements stipulated by regulators and to better serve the real economy, Li said. 

Bank loans have to grow by at least 15% a year to support 8% GDP growth in China, Li said, citing unspecified economists' studies. 

"To realize such a loan growth rate, Chinese banks will have a huge capital gap," he said. 

Asset securitization, especially loan securitization, could be a way to solve the predicament, he added.