China is looking to bundle 8 trillion yuan (US$1.3 trillion) of small-scale green loans into securities to access institutional investor capital.

China’s central bank has been in talks with UK regulators in London to see how it could bundle or securitize small-scale green loans that could appeal to global institutional investors, local media reported.

China’s green loan portfolio is worth 8 trillion yuan, local media cited. Most these loans were for small-scale low carbon projects, such as energy efficient buildings, low emission vehicle leases and rooftop solar PV projects. They are aggregated and securitized into larger pools so it could qualify as an investment for institutional investors.     

"Internationally, there is a lot of demand for green assets, but not enough supply," said Ma Jun, chairman of the green finance committee of China Society for Finance and Banking, an organization under China's Central Bank.

"So making Chinese green loans accessible is significant in mobilizing global capital for green investment," says Ma as reported in local media. China plans to trade these asset-backed securities (ABS) through Bond Connect, a scheme that provides foreign investors access to China’s domestic market.

Through green securitization, additional capital can be unlocked to fund low-carbon initiatives. The process allows lenders an opportunity to refinance existing loan portfolios and recycle capital to create a fresh portfolio of green loans.

According to S&P Global Ratings green securitization is expected to boost green bonds as a share of bank borrowings.

Currently, Chinese banks represent more than 50% of total green bond issuance by banks and around 40% of the number of green bond issuing banks, says S&P. 

On the back of policies supporting a green financial system in the country, China could continue to lead in the banks’ issuance of green bonds going forward, it adds.