March 24, 2020 / 10:04 AM / 9 days ago

Chinese consumer finance firms rush to raise money via ABS amid coronavirus

BEIJING/SHANGHAI (Reuters) - Chinese consumer finance companies are rushing to fund lending by selling asset-backed securities (ABS) as they join banks in a government-led campaign to boost consumption in an economy ravaged by the coronavirus outbreak.

Home Credit, one of the oldest consumer finance companies in China, launched the sale of 2.5 billion yuan of ABS backed by consumer loans on Tuesday, in the biggest ABS deal since the coronavirus outbreak shut large parts of China’s economy.

Asset-backed securities allow lenders to move loans off their balance sheets, freeing them up to extend fresh credit.

The firm, controlled by Czech businessman Petr Kellner, said it has another 15 billion yuan worth of ABS in the pipeline for sale.

The rising sales of consumer ABS come as demand for credit has been hit badly by the economic downturn, but officials have pinpointed consumer lenders as a key lever in rebooting consumption.

Beijing is “counting on” consumer credit to help consumption recovery, said Ye Yanfei, director general of the policy research department from China Banking and Insurance Regulatory Commission (CBIRC) on Sunday.

Banks including China Merchants Bank (600036.SS) and China Guangfa Bank have lowered the rates they offer on consumer loans and added special offers for credit card users.

Wang Jing, analyst with Golden Credit Rating International, predicted that deal size of ABS will continue to grow in 2020 because of the government-led push to boost consumer credit.

“Consumer credit is the only way out,” said Dexter Hsu, a Taiwan-based analyst with Macquarie Capital, who added that lenders with higher-margin consumer credit franchises could be better positioned in the current environment than larger banks whose income will be hurt more by rate cuts.

There are, however, concerns that ABS could fall out of favor with investors if weakening credit quality increased bad loan rates.

Credit rating agency Moody’s Investors Service warned last week that it expected the performance of auto loan ABS - a big segment in China’s ABS market - to weaken as economic growth slowed.

Reporting by Cheng Leng, Samuel Shen and Ryan Woo; Editing by Jennifer Hughes

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