China’s NPL Securitization Will Pose Challenges To Investors And Banks

China's prospective non-performing loan (NPL) securitizations transactions will be challenging for investors and potentially banks themselves due to hard-to-predict cash flows and an uncertain judicial process, says Fitch Ratings.

The credit rating agency believes that these factors make it difficult to rate these products at an investment grade level on an international rating scale.

China has reignited initiatives to securitize banks' NPLs in an attempt to clean up banks' balance sheets.

At the end of 2015, Chinese commercial banks reported RMB1.27 trillion (US$195 billion) in NPLs, or 1.67% of their outstanding balances, according to official numbers.

Chinese regulators have set RMB50 billion (US$7.7 billion) as the initial quota for the six-largest banks to test NPL securitizations.

Cash-flow uncertainty and opaque...

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