Credit asset-backed securities describe a structured financing activity in which a banking institution trusts a credit asset to the trustee as the trustee's sponsor to issue beneficiary securities to institutional investors and pay yields on asset-backed securities with cash derived from the asset. Credit asset-backed securities help banks to divert and diversify credit risks, improve asset-liability structure, increase asset liquidity, and boost asset productivity.
Currently, China's asset-backed securities fall under two categories: The first is bank credit asset-backed securities approved and regulated by the China Banking Regulatory Commission (CBRC) and those derived from the non-performing assets of asset management companies, which are mostly traded in the inter-bank market; The second is the corporate assets-backed securities from securities companies, which are publicly traded on the Shanghai and Shenzhen stock exchanges.
Credit asset transfer: A financial institution qualified for loan extension ("transferor") transfers its legally-owned credit assets in part or in whole to one or more other financial institutions ("transferee") at the agreed price and within the agreed period. This business category comprises: a. selling out credit assets to other financial institutions; b. buying out credit assets from other financial institutions according to the internal credit policy.
By combining credit asset with corporate finance, a bank can offer innovative corporate finance products with flexible terms based on its own credit assets or the credit assets purchased from other banks.
3. Service example
As of October 31, 2008, CMB issued the first installment of its Zhaoyuan 2008 credit asset-backed securities. With an asset value of RMB4.092 billion yuan, the issue comprised 50 corporate credit loans or secured loans for 33 borrowers. Based in 20 provinces, municipalities and autonomous regions including Guangdong, Anhui, Shangdong and Henan, these borrowers spanned 21 sectors such as road and railway transport, ports, nonferrous metals, and real estate. The asset pool had a credit rating of AA- to A+ and a remaining term of 15 months on a weighted average basis.
During the issuance process, CMB worked closely with the trustees, lead underwriter, trading regulator and fund custodian. The first Zhaoyuan 2008 credit asset-backed securities trust was founded on October 31, 2008.
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