On December 14th 2007, CCB's “Jianyuan 2007-1 Personal Housing Mortgage Loan Support Securities” was successfully issued.  This represented CCB’s continued exploration and in-depth practice in financial innovation after its successful issue of the first securitised product based on personal housing mortgage loans in 2005.

For the present securitisation project, CCB takes up the important roles of the originating institute, loan service institute and arranger; China Credit Trust Co., Ltd. acts as the entrusted institution and issuer; and China Lianhe Credit Rating Co., Ltd furnishes rating reports for the transactions involved.  To ensure the high quality of this transaction, CCB has also invited the participation of internationally reputed teams such as China International Capital Corp., Ltd, the law firm King & Wood and the accounting firm KPMG to provide related intermediary services.  For this transaction, Industrial & Commercial Bank of China provides fund custody services and China Government Securities Depository Trust & Clearing Co., Ltd. is the securities registration custody and payment agency institution.

With a total issue amount of RMB4,160 million, the Jianyuan 2007-1 Personal Housing Mortgage Support Securities is divided into preferred grade and junior grade.  For the preferred grade, floating interest rate is used, with the benchmark interest rate being that for one-year fixed deposits and the interest spread determined from the results of booking-keeping filing.  The benchmark rate will be adjusted every half year and principals and interests will be paid once a month.  The payment of both principals and earnings for the junior grade will only be made after payment of principals and interests of the preferred grade has been satisfied.  The preferred grade securities is further divided into A, B and C classes, with ratings of AAA, A and BBB respectively.  Payment of principals and interests for the A class will have the highest preference, followed by B class and C class.

The 12,000 or so personal housing mortgage loans which are put into the present asset pool through stringent selections are all quality assets from CCB Shenzhen Branch and CCB Fujian Branch.  As at the end of June 2007, the non-performing ratio of CCB’s personal housing mortgage loans at only 1.33% was the lowest among all CCB loans.  In terms of loan size and management standards for personal housing mortgage loans, Shenzhen Branch and Fujian Branch were among the best within CCB, and their non-performance ratios were just 0.2% and 0.25% respectively.

In asset securitisation, assets with low liquidity but predictable future cash flow are collected and pooled together, and the cash flow generated by the assets within the asset pool will be treated as repayment basis.  It is a structured financing process in which asset supported securities are issued on the capital market through such techniques and measures as bona fide sales of assets, risk-remote mechanism and credit enhancement, etc.  For commercial banks, asset securitisation helps in converting longer term bank loans into trusted beneficiary securities and, through the sales of these securities, capital is obtained, thereby raising the liquidity and utilisation rate of capital.  In the course of asset securitisation, a bank transfers earnings other than that from providing asset securitisation services to investors.  So, in addition to offering the public a chance to invest in bank assets, it diversifies and transfers all related credit risk, interest rate risk and prepayment risk to investors of different risk appetite in the market.  Thus redistribution of capital and risk in the financial market is achieved.

CCB is a pioneer in the domestic banking industry in carrying out securitisation of housing mortgage loans.  The successful issue and effective management of the first batch of personal housing mortgage loan support securities will serve a benchmark for the development of related products in future.  The “Jianyuan 2005-1 Personal Housing Mortgage Support Securities” project received the “Best Domestic Securitisation Issue Award” and “Best Domestic Securitisation Arranger Award” by the Asset Magazine in January 2006.  In January 2007, the Asian edition of International Review of Finance lauded the Jianyuan 2005-1 Personal Housing Mortgage Loan Support Securities as a “model for securitisation of Chinese assets”, and CCB also received the “Best Bond Deal in China 2006” award.

On the basis of its experience in the pilot project, CCB is aiming at making personal housing mortgage loan securitisation a regular and common-place business.  The design of the main project has been undertaken by CCB’s own investment banking specialists.  In addition to abiding by international standards, the current securitisation has adopted more management standards and characteristic practices in the Chinese personal housing loans business.  These, coupled with further streamlining and improvements in the internal operating processes, lay a foundation for future issuing of personal housing mortgage loan securitisation products.

The asset securitisation business is favourable to the optimisation of the asset-liability structure of commercial banks and to business diversification.  Thus is it an improvement in current operating mind-set and management methods in commercial banks.  CCB is the first and current the only Chinese commercial bank developing securitisation of personal housing mortgage loans.  It will keep on strengthening research and practice in this area to gradually establish a brand name for personal housing mortgage loan securitisation products.