Is China preparing to bail out troubled banks?

Will permit banks to sell-off loans to more investors.

Analysts see this move as a prelude to a possible bailout of lenders or distressed asset sales to private investors. Media reports say China is now testing a trading platform designed to introduce banks to a new class of investors, including non-bank financial institutions and large companies.

The lack of well-established precedents for asset disposal leaves banks only two options: sell non-performing loans in private deals (mostly with state-backed asset management firms) or keep rolling them over indefinitely to avoid booking a loss.

The new platform could aid the effort to draw in private investors by allowing for price discovery for loan transfers, creating benchmarks for future deals. This greater transparency in pricing could entice even more investors.

Media sources said the China Banking Regulatory Commission will introduce a "credit transfer system" in the interbank market that includes banks and non-bank financial institutions and large companies.

The system will allow for the transfer of asset-backed securities and non-securitized loan packages.

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