Chinese structured finance grew 15% in 3Q

130 transactions worth CNY209bn were issued during the period.

Growth in China's structured finance market is expected to remain strong through the rest of the year, supported by continued development and innovation by regulators, says Fitch Ratings.

Overall, there were 130 transactions worth approximately CNY209bn (USD30.9bn) issued in China's structured finance market in 3Q16, representing a 15% yoy increase.

Of total 3Q16 issuance, 66% was under the Asset-Backed Specific Plan (ABSP) scheme, regulated by the China Securities Regulatory Commission. This type of issuance saw a 133% yoy increase. Issuance under the Credit Asset Securitization (CAS) scheme, governed by the People's Bank of China and China Banking Regulatory Commission, declined by 41% yoy due to continued falls in collaterised loan obligation issuance.

The CAS scheme's 2015 full year issuance stood at CNY406bn, almost double the issuance under the ABSP scheme during the same period.

However, the ABSP scheme grew rapidly in 2016, with total issuance reaching CNY289bn in 3Q16, overtaking issuance under the CAS scheme by CNY79bn. This was mainly because the ABSP scheme attracted more corporate issuers due to the diversified underlying asset-classes it issued in the bond exchange market.

However, Fitch expects issuance under the CAS scheme to continue at a steady pace, with five new registered quotas approved under the shelf registration system and further support from regulators actively launching new products; including the launch of credit default swaps and credit-linked notes in China's interbank bond market.

This market is still at an early stage and the regulators are closely reviewing and monitoring each new transaction.

Five new non-performing loan (NPL) transactions were originated in 3Q16 by China Construction Bank Corporation, Industrial and Commercial Bank of China Limited, Agricultural Bank of China Limited and China Merchants Bank (BBB/Stable). So far, all pilot commercial banks, except Bank of Communications Co., Ltd., have issued NPL asset-backed security transactions, which used 16% of the CNY50bn in approved quotas.

Fitch expects further issuance in 2017, as the government is likely to expand approval to more commercial banks to help them deal with rising NPLs.