China May Allow Banks to Securitize Their Assets

China is currently working on a proposal to allow banks to securitize their assets so they can cope with any decline in liquidity as well as to a possible increase in bad debts, an official newspaper reported.

According to Shanghai Securities News reported Friday, quoting a senior from the Regulatory Commission of the banking sector plans to work on this issue with the Chinese central bank to submit a report to the government.

During the past year, China has stepped up interest rate increases while increasing the reserve requirement ratio for banks in an attempt to stem inflation.

Bad debts could record a sharp rise in the coming months if heavily indebted local authorities are unable to repay loans made through special financing arrangement.