A top financial regulator official on Friday urged more incentives should be given to issuers and investors of China's asset-backed securities (ABS).

Yang Kaisheng, a special adviser to China Banking Regulatory Commission, and former president of Industrial and Commercial Bank of China, said despite its explosive development in past few years, incentives for financial institutions to sell ABS is still not strong enough.

The securitization market closed in 2015 with a record 593 billion yuan ($90 billion) of issuance, 79 percent up from 2014 levels, according to China Central Depository & Clearing Co Ltd. Outstanding securities increased 15-fold compared with that of the end of 2013.

However, Yang noted that due to economic slowdown, deterioration of the banking asset quality, and insufficient loan demand, banks are increasingly less willing to package their good loans into securities and sell to the market.

"Commercial banks are more willing to hold their loans to maturity, because doing securitization means conceding some of the profits to investors. And if they securitize their loans, they are not sure if they could find new ones, which reduces their appetite for doing securitization," he said at the annual conference of China Securitization Forum.

From investors' perspective, individual investors are still barred from buying such products. Credit asset-backed securities could only be sold in China's interbank bond market, which bar non-financial companies from buying. More than 80 percent of credit asset-backed securities are held among banks, according to him, which in effect does not mean conversion of indirect financing to direct financing, a target securitization is supposed to achieve.

To offer stronger incentives, Yang proposed to ease some stringent requirement on banks' sale of ABS, and avoid double taxation.

He also stressed that credit asset-backed securities do not equal "non-performing loan-backed securities". The aim of selling credit asset-backed securities is to free up more capital to lend to the real economy, not reducing banks' NPL and transfer the risks to investors.