A Case Study On Credit Card Securitization Of China Merchants Bank

Credit card securitization refers to the process of pooling and repackaging of credit card receivable into securities. Nowadays, credit card securitization has become the primary fund resources of the card industry in the United Stated because it can effectively diversify their asset base and achieve higher competitiveness. Until March 2014, China Merchants Bank(CMB) successfully issued the first credit card ABS, and it is the only one successful credit card ABS in China.Base on the case study of CMB’s first credit card ABS, firstly, the paper summarizes the structural features of the credit card securitization of CMB, including the major participants, asset pool, SPV, cash flow structure, credit enhancement and the credit rating. And then, the paper explains CMB’s motivation for credit card securitization, and analyzes the advantages of CMB’s credit card ABS. It found that many effective measures were taken to reduce the risk of the asset-backed securities, including the credit risk, liquidity risk and so on.Secondly, the paper analyzes some deficiencies of CMB’s first credit card ABS by comparing with some cases of successful international credit card ABS, and found that the biggest difference is that CMB’s first credit card ABS hasn’t gone to the core of framework for credit card ABS, which refers to purchase credit card receivables into the asset pool after the SPV was set up. So it will set limit to the securitization of shorter-dated credit card receivables and the issuance of long-term credit card ABS. The second difference is that the SPV of CMB’s credit card securitization is lack of flexibility.Based on these disadvantages, the paper puts forward some relevant suggestions:(1) constructing the dynamic asset pool by revolving by purchasing credit card receivables into the asset pool after the SPV was set up.(2) By designing the double SPV to reach the risk-remoteness.(3) By using comprehensive credit enhancement to upgrade the credit of the securities.Finally, by analyzing the case of CMB’s credit card ABS, relevant advices about the design and risk prevention of credit card ABS are given to other Banks in China.