Thailand

Experience of Developing Economies Experience of Developing Economies in Securitization: Thailandin Securitization: Thailand

Mr. Thirachai PhuvanatnaranubalaSecretary-General, Securities & Exchange Commission, Thailand

At the ASEAN+3 Workshop on the Rise of Asset Securitization in East Asia(November 7-9, 2005, Shanghai)

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Experience of Developing Experience of Developing Economies Economies

in Securitization: Thailandin Securitization: Thailand

1. Step of Development2. Market Performance3. Impediments4. Future Need for Securitization5. Conclusion

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1. Step of Development1. 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 Development1. 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 Performance2. Market Performance

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

Issuance of Corporate Bonds in Thailand

Source : Securities and Exchange Commission, Thailand

Asian Issuance of Securitized Bonds : 2003

Japan51.1%

Indonesia0.1%

Thailand0.3%

South Korea21.3%

Singapore7.6%

Taiwan5.7%

Malaysia5.2%

India4.9%

Hong Kong3.8%

Source : Thomson Financial YE 2004, cited by HSBS, Structured Capital Markets in Asia, 16 June 2005

0

50

100

150

200

250

300

350

1997 1998 1999 2000 2001 2002 2003 2004 2005H1

ABS

Corp. Bond ex ABS

Billion Baht

Thailand

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2. Market Performance2. Market Performance

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

Assets of Securitized Bonds in Thailand

Source : Securities and Exchange Commission, Thailand

0

2

4

6

8

10

12

14

16

1997 1998 1999 2000 2001 2002 2003 2004 2005H1

Trade Account

Housing Mortgage

Housing Hire Purchase

Real Estate Hire Purchase

Credit Card

Consumer Credit

Auto

Billion Baht

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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)

3. Impediments3. Impediments

Source : Bank of Thailand

Money Market Rate

0

5

10

15

20

25

30

1990

1991

1992

1992

1993

1994

1995

1996

1997

1997

1998

1999

2000

2001

2002

2002

2003

2004

2005

14-D RP Interbank Overnight% p.a.

Source : National Economic and Social Development Board

Growth Rate

-60

-40

-20

0

20

40

GDP

Private Investment

Public Investment

%

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3. Impediments3. 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. Impediments3. 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. Impediments3. 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 Securitization4. Future Need for Securitization

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

Source : Government Housing Bank, Annual Report 2004

Outstanding Value of Housing Mortgages

0

200

400

600

800

1,000

1,200

1990 1995 2000 2004Q3

Others

Govt Housing Bank

Commercial Banks

Billion Baht

Source : Bank of Thailand

Outstanding Value of Credit Cards Loans

45

3341

72

94

118

34

0

20

40

60

80

100

120

140

1998 1999 2000 2001 2002 2003 2004

Billion Baht

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4. Future Need for Securitization4. 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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24

75

113119

79

16

39

62

76

113

0

100

200

300

400

500

600

2005 2006 2007 2008 2009

Budget Income of SOEs*

Domestic Borrowings Foreign Borrowings

Others

Billion Baht

4. Future Need for Securitization4. Future Need for Securitization

Important financing for government’s infrastructure projects In need of large

amount of funding External financing by

borrowing up to 40-50%

41%41%

41%

45%

58%

Source of Financing Mega Projects

Source : Ministry of FinanceNote : * State-owned enterprises

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5. Conclusion5. 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