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Asset-backed securities called for
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Wu Yan
LIN WANQUAN, a member of the SZ Municipal Committee of the Chinese People's Political Consultative Conference (CPPCC), appealed on Monday for the setting up of the country's first asset-backed securities market here in Shenzhen.
Asset-backed securities, or ABS, are bonds or notes backed by financial assets. Typically these assets consist of receivables such as mortgage loans, credit card receivables, auto loans, manufactured-housing contracts and home-equity loans. For example, a bank has issued a home mortgage loan for a certain amount of money. Then, with the interest split, it turns this loan into securities and sells them to investors who in turn will be responsible for collecting the instalment payments plus interest. In this way, the bank is able to get back its loan and part of the interest quickly.
According to Lin, the establishment of this market would help increase the city's tax revenue, further strengthen SZ's status as a national financial centre as well as help the development of local banking and insurance and real estate, plus more capital would thereby be attracted into the city.
Lin cited several reasons to justify SZ's status as the ideal place to initiate China's ABS market. The city has a relatively comprehensive financial system while finance has become one of its three backbone industries. The size of local mortgage loans is large and of high quality. At the same time, while many local banks are willing to sell their mortgaged assets, many local investment institutions want to explore new frontiers.
The first ABS were issued in the United States in 1985.
Lin suggested a pilot securitization of home-equity loans in his speech. And he asked the city government and legislature to act to help nurture a local ABS market.
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