Asset securitisation, viewed from several angles
Securitisation takes a project that has little ready cash today but is expected to earn in future, and uses the cash flow it will produce to back securities that are structured, repackaged and then issued and traded in the capital markets. The term is used broadly of securitisation of physical assets, credit assets, securities and cash, and narrowly of credit assets alone, the sense given it by the pilot rules issued jointly in 2005 by the central bank and the banking regulator, under which a bank entrusts loans to a trustee that issues beneficiary securities to investors.
1. What is asset securitisation?
Asset securitisation means taking a project that lacks liquid funds at present but is expected to produce income in future, and, with the cash flow it will generate as the source of repayment, so structuring and recombining it that it may be issued and traded in the capital markets.
In the broad sense asset securitisation covers securitisation of physical assets, of credit assets, of securities and of cash, while in the narrow sense it means the securitisation of credit assets alone. Domestically, the People's Bank of China and the China Banking Regulatory Commission first defined it in 2005 in the joint pilot measures on the securitisation of credit assets, as "within the territory of China, a structured financing activity in which a banking financial institution, as originator, entrusts credit assets to a trustee institution, which issues beneficiary securities in the form of asset-backed securities to investing institutions, the return on the asset-backed securities being paid out of the cash the entrusted property generates".
