Experience of Developing Economies in Securitization: Thailand

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Experience of Developing Economies in
Securitization Thailand

• Mr. Thirachai Phuvanatnaranubala
• Secretary-General, Securities Exchange
  Commission, Thailand
• At the ASEAN3 Workshop on the Rise of Asset
  Securitization in East Asia
• (November 7-9, 2005, Shanghai)

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Experience of Developing Economies in
Securitization Thailand

1. Step of Development
2. Market Performance
3. Impediments
4. Future Need for Securitization
5. Conclusion

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1. Step of Development

• Policy first conceived under 7th Plan (1992-1996)
• Promote long-term savings
• Support capital market development
• Enacted Securitization Act (1997)
• Allow setting up of SPV
• Bankruptcy remoteness for SPV
• Exempt tax on transferred assets

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1. Step of Development

• Established Secondary Mortgage Corporation (Jan.
  1998)
• To carry out businesses
• Secondary mortgage portfolio business
• Housing mortgage securitization business

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2. Market Performance
Issuance of Corporate Bonds in Thailand
Asian Issuance of Securitized Bonds 2003
Source Securities and Exchange Commission,
Thailand
Source Thomson Financial YE 2004, cited by
HSBS, Structured Capital Markets in
Asia, 16 June 2005

• Small issuance value
• Account for less than 6 of total corporate bond
  issuance
• Low development compared to Asian region

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2. Market Performance
Assets of Securitized Bonds in Thailand
Source Securities and Exchange Commission,
Thailand

• Limited range of asset type used for
  securitization
• Credit card, trade account are not popular

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3. Impediments

• Market conditions not conducive to
  securitization
• Contraction of investment after financial crisis
• Excess liquidity in the financial system
• Low interest rate environment
• Little need for securitization as a funding
  source (1997-2004)

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3. Impediments

• Legal issue
• No trust law to recognize different class of
  assets
• In case of originator bankruptcy, although
  remote, there is possibility of claw back if
  transfer proved to be fraudulent
• Existing law
• Does not address future receivables
• Does not yet allow public offering

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3. Impediments

• Tax issue
• SPV is subject to corporate income tax
• Accounting issue
• No specific accounting standard for
  securitization scheme
• Under IAS Require consolidation of SPV and
  originator
• Transferred assets not treated as true sale
• Consolidation reduces benefit to originator

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3. Impediments

• Market infrastructure
• Inadequate market information on
• Default rate
• Prepayment rate
• Lead player
• Government Housing Bank not subject to BIS ratio,
  no pressure to sell off mortgage loans

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4. Future Need for Securitization

• Rapid growth in credit market
  (housing mortgages, credit cards)

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4. Future Need for Securitization

• Increasing importance for private business sector
• Need for funding to support investment expansion
• Upward interest rate trend
• In line with rising interest rate in major
  markets
• Pressure from inflation under high oil prices
• Decline in market liquidity
• Banking sector adjustment
• Need for larger capital base under new capital
  accord (BASEL II)
• Additional capital base for operation risk
• Stricter approach on loan classification

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4. Future Need for Securitization
Source of Financing Mega Projects

• Important financing for governments
  infrastructure projects
• In need of large amount of funding
• External financing by borrowing up to 40-50

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58
Source Ministry of Finance Note State-owned
enterprises
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5. Conclusion

• Securitization is new to Thailand
• Market development has been slow
• There obstacles remain
• Tax issue
• Legal issue
• Accounting issue
• In need of securitization as a funding source for
  future economic development
• Private business sector investment expansion
• Banking sector new capital accord
• Public sector infrastructure projects
• Effort to reform market is underway