unofficial translation this translation is for the convenience of … · 2017. 9. 1. · 5 bot...

BOT Notification No 08-2551 (1 September 2017)-check

Unofficial Translation This translation is for the convenience of those unfamiliar with the Thai language

Please refer to Thai text for the official version --------------------------------------

Notification of the Bank of Thailand No. FPG. 08/2551

Re: Permission for Financial Institutions to Conduct Securitisation Business __________________

1. Rationale

The Bank of Thailand has granted permission for financial institutions to conduct securitisation project to be proposed to the Securities and Exchange Commission since 1997 with the following objectives.

1.1 To increase business channels, to enhance liquidity facility for financial institutions and to derive benefits from the capital more effectively as well as to reduce operational cost of financial institutions.

1.2 To establish regulation for conducting securitisation for all financial institutions to comply with.

1.3 To require financial institutions which intend to conduct the securitisation business to identify, measure, monitor, manage and control risks that related to this business as well as to maintain proper capital for supporting such risks.

1.4 To encourage financial institutions to disclose information sufficiently and transparently in order to improve the market more effectively.

The issuance of this Notification is to refer to statutory power of the Financial Institution Business Act B.E. 2551 (2008). The principal of conducting the securitisation business regulation do not change from the previous regulations. However, modification was made on financial institution’s capital maintenance regulation in the case where it acts as the first loss facility provider which upon the enforcement of Basel II, financial institutions shall deduct the value of the obligations to a Special Purpose Vehicle or an asset transferee company from the tier 1 and tier 2 capital, at 50% each, instead of deducting from the financial institutions’ total capital.

2


2. Statutory Power

By virtue of Section 29, Section 30, Section 32, Section 36, Section 50, Section 52 and Section 71 of the Financial Institution Business Act B.E. 2551 (2008), the Bank of Thailand hereby permits the financial institutions to conduct securitization business in accordance with the regulations of this notification.

3. Scope of Application

This Notification shall apply to all financial institutions according to the law on financial institution business.

4. Repealed/Amended Notification and Circulars

Repealed/Amended notification and circulars are listed in the Attachment.

5. Content

5.1 In this Notification,

“Special Purpose Vehicle (SPV)” means a special purpose juristic person established under the law governing special purpose vehicles for securitisation purposes or asset transferee company under the law governing securities and exchange securities which establish for operating securitisation that accept the assets transferred from the originator and issues securities for investors;

“securitisation” means transfer of assets from a seller to an SPV where the SPV issues securities to sell to investors by offering a return to securities holders based on the cash flow from the transferred assets whereby the transferred underlying assets must be homogenous;

“securitisation securities” means instruments are issued by an SPV, which could be in the form of debt instrument or unit trust;

“underlying asset” means right to claim or any other right that lead to future cash inflow regardless of its certainty, for example, housing mortgage loan or concession right to collect tolls; in addition, it shall be in accordance with the definition under the Emergency Decree on Special Purpose Vehicles for Securitisation B.E. 2540 (1997) and as amended; however, it shall not include the following underlying assets:

3


1. Borrowings for the purpose of securities purchase (Margin Accounts)1,

2. Instruments regarded as capital of the investing financial institution2,

3. Collateralized debt obligations (CDOs),

4. Derivatives and all types of embedded derivative transactions,

5. Other assets announced by the Bank of Thailand;

“SEC” means the Securities and Exchange Commission;

“commercial bank” means a commercial bank under Section 4 of the Financial Institution Business Act B.E. 2551 (2008) except retail banks.

5.2 Principle

5.2.1 Securitisation is one of the techniques to transfer credit risk. The forms and structures of such business are variously and differently depending on the requirement of the seller of the assets, securities investor, type and quality of the assets. In addition to being a seller of assets (originator) or investor of the securitisation securities; a financial institution, which participates in securitisation project may perform other related functions such as first loss facility provider or servicer/back-up servicer, etc. In performing these different functions, the financial institution is exposed to different risks. Hence, it must correctly and appropriately maintain capital to the various risks associated with each function.

5.2.2 The Bank of Thailand grants a general permission for commercial banks to perform the function of an originator to conduct securitisation business subject to the Securities and Exchange Commission and to perform other functions which related to the securitisation such as servicer/back-up servicer, etc. in accordance with the Bank of Thailand’s regulation stipulated within this Notification. Whereas the originating commercial bank which conducting the securitisation project, must notify the Financial Institution Applications Department, Supervision Group of the Bank of Thailand of every project within 15 days from the date that the assets are transferred to the SPV.

1 The Bank of Thailand does not permit financial institutions to grant credit for the purpose of securities purchase since it is only business of the securities companies. 2 For example, FI A issues a subordinated debt to be regarded as its capital; whereby FI B is the investor who purchases such a subordinated debt. Subsequently, FI B sells FI A’s subordinated debt to an SPV in order to issue securitisation securities to sell to investors. Then, if FI A invests in such securitisation securities, it shall be deemed that it is a repurchase of the subordinated debt regarded as the capital which would reduce FI A’s capital.

4


Non-originating commercial bank performing other functions related to such securitisation project need not notify the Bank of Thailand. This permission does not include permission to conduct synthetic securitisation3 which the Bank of Thailand shall prescribe further permission and supervisory regulations.

With regard to retail banks, finance companies and credit foncier companies which are subject to more restricted business scope, if they should conduct to act as an originator of a securitisation project to the Securities and Exchange Commission or to conduct other functions which related to this project, prior approval must be obtained from the Bank of Thailand by submitting an application to the Financial Institution Applications Department, Supervision Group of the Bank of Thailand and to be accompanied by essential details of the securitisation project as well as type and shareholding structure of the SPV to be established.

5.2.3 Financial institutions intending to conduct securitisation business must be able to specify, measure, monitor, manage and control relevant risks correctly and appropriately. Moreover, boards of directors and senior management of the financial institutions shall set policies and procedures for conducting the various businesses including risk management and internal control to ensure that the businesses are conducted correctly and appropriately.

5.2.4 Financial institutions should consider the maximum volume of each type of assets which will be transferring to a SPV, in addition to setting an aggregate limit or maximum ceiling for investment in the securities of the SPVs, holding underlying assets in the same types of business, industries or region in order to prevent excessive holding. Nonetheless, the Bank of Thailand may prescribe additional regulation to control such volume.

5.2.5 Originating financial institutions which conducting the securitisation project and non-originating financial institutions which performing other functions related to a securitisation such as servicer/back-up servicer, etc. must prepare written documents such as those in the format of an annual report or other format to disclose information related to the structure and form of such business, as well as risk exposure from participating in various functions associated with securitisation for the financial institutions’ shareholders and third parties. Because of the wide range of complexity and functions related to such business, financial institutions may have different risk

3 Synthetic securitisation means the use of derivatives by a commercial bank to transfer all or partial credit risk of debtors without transferring the asset from its account to the SPV in the same manners as the traditional securitisation. The risk of the investor of the synthetic securities depends on the repayment ability of the debtors that are the underlying assets.

5


exposures, whereby financial institutions shall hence comply with the regulation under Clause 5.3.5.

5.2.6 In the case where a financial institution is the originator, it may invest in the securitisation securities which the transferred assets are underlying assets, but not more than 10% of the value of such securities in each tranche. Additionally, in the case where the originating financial institution provided firm underwriting for the instruments issued by the SPV and has to invest more than 10% of the securities value in each tranche, the financial institution shall dispose the securities within 90 days to reduce its holding to no more than 10% of the value in each tranche.

Nonetheless, if the Bank of Thailand examines that financial institution invests in a substantial portion or all of the securitisation securities issued by other SPVs where the financial institution is not an originator but previously granted credits or invested in the debtor which is an underlying assets of such securities with the intention to circumvent the abovementioned supervision, the Bank of Thailand may order such financial institution to reduce its holding of the securities or deduct all of the excess amount from the financial institution’s capital or , deduct 50% from the tier 1 and tier 2 capital each upon the enforcement of the notification of the Bank of Thailand regarding supervisory regulation on capital and the notification of the Bank of Thailand regarding components of capital fund in accordance with Basel II.

6


5.3 Regulations for Conducting Business

The key points of the guideline consist of:

Subject Clause

Permission 5.3.1

Supervisory regulation for securitisation 5.3.2

Sale of assets 5.3.2 (1)

Provider of credit enhancement 5.3.2 (2)

Servicer/back-up servicer 5.3.2 (3) Provider of temporary liquidity facility for

SPVs or asset transferee companies

5.3.2 (4) Securities underwriting 5.3.2 (5)

Investment in securitisation securities 5.3.2 (6)

Other functions 5.3.2 (7) Application of financial institutions for

transactions not mentioned in the stipulated guideline within this Notification

5.3.3 Repurchase of assets from SPV 5.3.4

Representations and warranties 5.3.4 (1)

Clean-up call 5.3.4 (2)

Disclosure 5.3.5

Other regulations 5.3.6 Compliance with the laws or other related

guidelines

5.3.6 (1) Authority to impose sanctions on financial

institutions

5.3.6 (2) Additional regulation 5.3.6 (3)

5.3.1 Permission

The Bank of Thailand grants permission for financial institutions to conduct securitisation business subject to the following regulations.

7


(1) Financial institutions must prepare operating plans for the various functions relevant to the securitisation business in writing. In addition, the plans must be approved by the financial institutions’ boards of directors and must contain the following details.

1.1) Operation readiness such as business policy, operating procedures, scope of responsibilities, operation supervision, risk management, internal control, documentation and maintenance of documents, etc.

1.2) Human resource readiness.

(2) In the case where financial institutions are originators which prepare securitisation proposals for submission to the Securities and Exchange Commission, they shall comply with the following rules.

(2.1) Originating financial institutions shall not hold shares in the SPV for more than 10% of the total share value.

(2.2) Financial institutions must notify the Financial Institution Applications Department, Supervision Group of the Bank of Thailand in writing within 15 days from the date that transfer asset to the SPV. Retail banks, finance companies and credit foncier companies must first obtain prior approval from the Bank of Thailand by submitting applications to the Financial Institution Applications Department, Supervision Group of the Bank of Thailand. Both noticeletter or application must contain a summary of the features of the securitisation business which shall include the following details.

(2.2.1) Structure of the securitisation business, type of assets transferred to the SPV and various functions related to the securitisation.

(2.2.2) Shareholding structure of the SPV including structure of the securities offered by the SPV to the investors.

(2.2.3) Conditions for repurchase of the assets of the originating financial institution including criteria or ranking of principal or interest repayment priority to investors and various service providers.

(2.2.4) If the originating commercial bank, performs other functions other than being the originators such as servicer/back-up servicer, etc., the commercial bank shall inform the Financial Institution Applications Department, Supervision Group of the Bank of Thailand of the scope of its roles in such business. Furthermore, it

8


shall also comply with the regulations stipulated by the Bank of Thailand related to such functions.

(3) In the case where retail banks, finance companies and credit foncier companies perform other functions other than being the originators which is subject to supervisory regulation for securitisation under Clause 5.3.2, the retail banks, finance companies and credit foncier companies shall submit applications to obtain approval from the Financial Institution Applications Department, Supervision Group of the Bank of Thailand. The applications shall also include essential details regarding the securitisation and summary of the scope of responsibilities of such business.

In addition, securitisation business must be operate within the scope of business permitted to retail banks, finance companies and credit foncier companies as stipulated under the law and subject to the supervisory regulation stipulated by the Bank of Thailand. With regards to credit foncier companies, the Bank of Thailand shall consider only applications for 1) sale of assets for securitisation projects, 2) providing services as a servicer/backup servicer without any responsibilities in liabilities, and 3) investing in securitisation securities.

(4) In the case where financial institutions undertake any business that incurs financial risks, such as:

(a) being providers of credit enhancement which means any action that causes the financial institutions to be liable for losses to the SPV or the investors of the securitisation securities;

(b) being servicer/back-up servicer where the scope of such services required the financial institutions, assume the liability on behalf of the debtors regardless of whether fully or partially.

Financial institutions taking on such roles must have the following qualifications and shall comply with the following stipulations.

(4.1) Having of a sound financial position and having good performance, able to make full provision in accordance with the notification of the Bank of Thailand regarding regulations for classification and provision of financial institutions, possessing a ratio of capital to assets and contingent liabilities of no less than the regulation prescribed by the Bank of Thailand as well as possessing the capability to maintain any other financial ratios that the Bank of Thailand may specially prescribe.

9


(4.2) Possessing such operating systems that enable their boards of directors to monitor risks arisen from the transactions such as alert signal on the performance of the underlying assets’ industry, increased risk, operating system and internal control problems, non-compliance of with laws and regulations, etc.

(5) In the case where financial institutions are transaction administrators of securitisation performing such duties as allocating and managing the income from the right to claim transferred to the issuer of the securitisation securities, they shall operate according to the rules and procedures stipulated in the transaction administration agreement.

5.3.2 Supervisory Regulations for Financial Institutions Conducting Securitisation Business

The Bank of Thailand stipulates the following regulations for conducting securitisation business:

1) Sale of assets for the purpose of securitisation project

Originating financial institutions may remove underlying assets from their accounts and need not maintain capital for the disposed underlying assets if the sale leads to financial institutions remove underlying assets from their accounts fully or partially according to the following criteria:

(1.1) Financial institutions must sell the assets at fair value in accordance with the accounting standards.

(1.2) Financial institutions must comply with the following sale conditions.

(1.2.1) Financial institutions must transfer all credit risk and returns associated with the assets to another person except where the originators still have risk from performing other functions related to the securitisation such as providing first loss facility, investing in the securities, etc.

(1.2.2) The originators must not retain any control over the transferred assets. This also applies to the event that the originators become bankrupt. In such an event, creditors of the originator are not entitled to any claim on the transferred assets.

10


(1.2.3) The originators must not have any obligation to the investors related to the asset quality.

(1.2.4) The SPV and investors have the right to pledge or mortgage the assets.

(1.2.5) The originators must not enter into any agreement to repurchase the assets except as a repurchase conditions of representations and warranties, and clean-up call which shall be in accordance with the stipulation of the Bank of Thailand under Clause 5.3.4.

(1.2.6) The sale agreement of the assets must not contain any provision to indicate that originating financial institutions may alter the underlying assets to improve the creditworthiness rating of the underlying asset pool except where the SPVs sell the assets at fair value to other juristic persons unrelated to the originating financial institutions. Moreover, the agreement must not contain any provision requiring the originating financial institutions to assume further obligation over the first loss or any provision to increase yields to the investors or other service providers that are not the originator, in order to compensate for any deterioration of the quality of the underlying assets.

Furthermore, if the accounting guideline for securitisation or the accounting standard for securitisation issued by the Federation of Accounting Profession shall come into force, financial institutions shall comply with the rules for the partial or full derecognition under such accounting guideline or accounting standards.

2) Provider of credit enhancement

Provider of credit enhancement may be provided in 2 following forms:

(a) As guarantors of underlying assets mean financial institutions providing loan guarantee for any debtor in the underlying asset portfolio to the SPVs in an event of default in order to enhance the creditworthiness rating of the securitisation securities;

(b) As first loss facility providers mean financial institutions providing guarantee on the first loss to other investors in the securitisation securities in the event that the debtors are unable to pay interest or principal as scheduled. For example, the financial institutions that are holders of subordinated shares, financial

11


institutions lending subordinated debts to the SPVs or any other functions which the financial institutions must to be responsible for the first loss of the underlying asset portfolio. Such as where a financial institution assumes full or partial obligation by acting as a servicer/back-up servicer, etc.

Financial institutions must evaluate the asset quality, default history and loss rate of the underlying asset portfolio to determine the adequacy of the first loss facility. There must be an external agency or an independent unit to certify the adequacy of the first loss facility as follows:

The securitisation project that must be rated creditworthiness in accordance with the regulations of the Securities and Exchange Commission, originating financial institutions must arrange for an assessment by a credit assessment institutions approved by the Securities and Exchange Commission or an internationally accepted credit assessment institutions such as Fitch Ratings, Standard and Poor’s and Moody’s etc.

For the project is not required the creditworthiness rating, the originating financial institutions must arrange for an assessment of adequacy of loss value by their independent unit or internal control unit or audit committee.

Maximum limit that an originating financial institution may guarantee the first loss facility to all SPVs combined shall not exceed 25% of its tier 1 capital.

Financial institutions shall comply with the following regulations upon assuming either of the 2 forms of credit enhancement mentioned above.

(2.1) Financial institutions must clearly specify the obligation or the amount of the loss that they must be responsible in the agreements and shall not assume any additional loss than that already specified.

(2.2) Financial institutions must clearly specify the period of guarantee which does not identify the termination date of the agreement. For example, the guarantee may be set to terminate upon fully payment of the principal and interest.

(2.3) Financial institutions must assess the credit risk of the underlying assets for which they are responsible in accordance with their credit approval procedures. Additionally, the remuneration must be fair and commensurate with the market price (arm’s length basis).

12


(2.4) If a financial institution requires to revoke the loss facility agreement, it shall notify the SPV in advance for no less than 90 days to allow the SPV to find another party to assume such responsibility.

Capital Maintenance

(1) Financial institutions (except credit foncier companies) acting as guarantors shall maintain the capital by using the credit conversion factor of 1 and the risk weight of the underlying assets.

(2) Financial institutions (except credit foncier companies) providing first loss facility shall comply with the followings:

Non-originating financial institutions shall deduct the amount which they are responsible to each SPV from their total capital on the transaction date. However, upon the enforcement of the notification of the Bank of Thailand re: supervisory regulation on capital and the notification of the Bank of Thailand re: components of capital in accordance with Basel II, financial institutions shall deduct the amount of the obligations to each SPV from the tier 1 and tier 2 capital, at 50% each instead.

Originating financial institutions shall deduct the amount which they are responsible to each SPV from their total capital on the transaction date. However, upon the enforcement of the notification of the Bank of Thailand re: supervisory regulation on capital and the notification of the Bank of Thailand re: components of capital in accordance with Basel II, financial institutions shall deduct the value of the obligations to each SPV from the tier 1 and tier 2 capital, at 50% each instead. The Bank of Thailand further stipulates that the capital charge to be deducted for each SPV shall not exceed the amount of capital to be maintained if such transferred underlying assets were to remain in accounts of the originating financial institutions. In addition if it should be discovered that the actual loss exceeds the amount of the capital charge, the originating financial institutions shall set additional provision for the amount equivalent to the actual loss incurred as a result of deterioration of the underlying assets up to the amount responsible by the financial institutions. Moreover, if the examiner of the Bank of Thailand discovers that any financial institution provides implicit support which results in a higher first loss facility than originally stated, the examiner may order the financial institution to apply additional capital charges.

Large Exposure Calculation

13


(1) Financial institutions acting as guarantors shall regard the guarantee as a contingent liability. Hence, they must add the amount under the guarantee agreement to the amount of granting of credits, investments, contingent liabilities or credit-like transactions they have extended to such debtor and at the end of the day, such amount shall not exceed the legal ratio in accordance with the notification of the Bank of Thailand re: supervisory regulation on large debt exposure (Single Lending Limit).

(2) Financial institutions providing first loss facility in any of the various forms shall observe the following.

Where a financial institution is a provider of subordinated loan to the SPV, or is a servicer/back-up servicer that assumes responsibility on behalf of a debtor, whether fully or partially, to the SPV, or is a provider of liquidity facility, but non-complied with the regulation under Clause (4), it shall count the following persons in the calculation of large exposure according to the notification of the Bank of Thailand re: supervisory regulation on large debt exposure (Single Lending Limit).

(a) SPV

The amount of subordinated loan provided by a financial institution, or the amount of obligation it assumed on behalf of a debtor or the amount provided as liquidity facility to the SPV, when added to the amount of granting of credits, investments, contingent liabilities and credit-like transactions extended to such SPV at the end of the day shall not exceed the legal limit of that financial institution.

(b) Underlying assets that are corporate loans

Financial institutions shall calculate the exposure to each of the underlying asset arisen from granting subordinated loans to the SPV or the amount of obligation they assumed on behalf of a debtor, or the amount provided as liquidity facility to the SPV but non-complied with the regulation under Clause (4) which reflects the tranche of the credits or obligated amount or amount provided as liquidity facility such as sensitivity consideration of the credits or obligated amount or amount provided as liquidity facility to change of creditworthiness of each underlying assets. When adding those exposures to the granting of credits, investments, contingent liabilities and credit-like transactions extended to such debtor at the end of the day, it shall not exceed the legal limit of that financial institution. If there is any inquiry, commercial banks shall consult the Bank of Thailand.

14


Financial institutions must establish internal report systems to control their exposures arisen from each underlying assets at the end of the day not to exceed the rate prescribed by the Bank of Thailand and shall have supporting documents available for the inspection of the Bank of Thailand or to submit the copy to the Bank of Thailand upon request.

Where a financial institution is an investor of the securitisation securities that it also is responsible for the first loss tranche, it shall comply with the large exposure regulation prescribed for investors in the securitisation securities in Clause (6).

For any other cases, financial institutions shall consult the Financial Institution Applications Department, Supervision Group of the Bank of Thailand on a case by case basis.

3) Servicer/Back-up servicer

To be a servicer/back-up servicer of a securitisation transaction shall mean to provide services as a collecting agent for an SPV or as a back-up collecting agent in the event of the servicer’s bankruptcy or inability to perform its duty of the servicer. The responsibilities include managing assets for the SPV, making investment or finding additional benefits from the right of claim transferred to the SPV, acting as an agent for the SPV in collecting or undertaking legal enforcement on the debtors as well as preparing accounting, reports, keeping documents, making tax or insurance payments and any other duty related to loan collection. In providing such services, financial institutions must comply the following regulation.

(3.1) Remuneration received by financial institutions must be fair and commensurate with the market price and the financial institutions shall have first priority to be compensated from such duty.

(3.2) Financial institutions shall not assume any other risks in addition to becoming the servicer/back-up servicer such as becoming responsible for the debt obligation on behalf of the debtor either fully or partially. If the financial institutions assume such liability either fully or partially from acting as servicer, it shall be deemed that such financial institutions are providers of first loss facility and must comply with the regulation related to capital and large exposure that applies to providers of first loss facility.

15


(3.3) Financial institutions must have, at the minimum, the following supporting systems and operational risk management system.

(3.3.1) Policies for operations, accounting and internal control must consistent with the debt collection responsibilities as set out in the agreement with a counterparty.

(3.3.2) There must be an effective operational system and information technology system.

(3.3.3) There must be an accounting system and a system to maintain loan agreement documents related to the servicer function, separated from other functions of the financial institutions.

(3.3.4) Reports related to servicer function shall be prepared separately for each agreement between the financial institutions and other parties engaging the financial institutions to perform such function including each SPV such that the operation could be examined and monitored by the financial institutions and the other parties.

(4) Provider of liquidity facility to SPV

Proving liquidity facility to SPV shall mean granting credits to the SPV for the purpose of making interest or principal payments to investors at specific intervals where there is a timing mismatch between SPV receiving principal or interest from the underlying assets and paying interests to the investors, in the case that the credit facility is not intended to cover any losses. Financial institutions shall comply with the following regulations.

(4.1) The financial institution granted credit facility in this case must not also become a subordinated debt lender. In other word, the SPV must repay the financial institution promptly upon receiving interest or principal payment from the underlying assets.

(4.2) The financial institution granted credit facility must be received the payment within 3 months from the dated the credit is granted or may be received the payment after the specified period if it is able to prove that the late repayment is not caused by the deterioration of the underlying asset.

16


Financial institutions providing liquidity facility to the SPV must comply with the regulations on capital and large exposure prescribed by the Bank of Thailand for financial institutions provided credit facilities.

If Clauses (4.1) or (4.2) are not observed or the financial institution is unable to demonstrate that such credit is for the purpose of providing liquidity facility, it shall be deemed that the financial institution extended the credit acts as a first loss facility provider and such financial institution shall comply strictly with the regulations prescribed for the first loss facility providers.

(5) Securities Underwriter

Financial institutions shall comply the following regulations:

(5.1) Financial institutions shall comply with the regulation on underwriting of debt instruments specified in the notification of the Bank of Thailand regarding permission for commercial banks to undertake securities business or notification of the Bank of Thailand re: permission to finance companies to undertake business related to securities business consisted of qualification and criteria for preparing operational plans for such business, such as risk management process, internal control system, administration system, and accounting system, etc.

(5.2) In the case where the originating financial institution is also an underwriter of the securitisation securities and must invest in the instrument as a result from its firm underwriting which may cause the financial institution to hold such securities in excess of 10% of the value of the securities in each tranche, the financial institution shall dispose the securities within 90 days in order to reduce its holding to be within 10% of the value of the securities of each tranche.

Capital Maintenance

(1) Firm underwriting of securitisation securities is deemed to be a contingent liability. The underwriting financial institution (except credit foncier companies) shall maintain capital for the obligation according to the underwriting agreement of securitisation from the date it executes the underwriting agreement until the last day of the offering period. Such contingent liability shall have a credit conversion factor equal to the contingent liability under securities or instrument underwriting agreement prescribed by the Bank of Thailand which is equal to 0.5 and shall use the risk weight of the issuing SPV.

17


(2) If a financial institution (except credit foncier companies) provided firm underwriting must invest in the securitisation securities unsubscribed after the end of the offering period, it shall record such securities in its trading book and maintain capital according to the regulation as stipulated in the notification of the Bank of Thailand regarding supervisory regulation for market risk and capital charge for market risk of financial institutions.


Financial institutions acting as firm underwriter of securitisation securities are deemed to be a contingent liability. Hence, they must add the amount under the underwriting agreement to the amount of granting of credits, investments, contingent liabilities and credit-like transactions extended to such SPV at the end of the day, such amount shall not exceed the legal limit of that financial institutions in accordance with the notification of the Bank of Thailand re: supervisory regulation on large debt exposure (Single Lending Limit).

(6) Investor of Securitisation Securities

Financial institutions are able to invest in the securitisation securities which may be divided into various tranches according to the different risk exposures. In investing in such securities, financial institutions shall comply the following regulations.

(6.1) If the financial institutions invest in the securities in which they are responsible for the first loss tranche, they shall record such securities in their banking books.

(6.2) If the financial institutions invest in the securities in which they are responsible for loss ranked higher than the first loss tranche, they shall record such securities in their trading books or banking books depending on the qualities of the securities, its intent and its ability to hold on to such securities

(6.3) Where an investor is also the originating financial institution, the Bank of Thailand permits the originating financial institution to invest in securitisation securities no more than 10% of the value of the securities in each tranche. However, it does not include the investment that the financial institution must be responsible for the first loss tranche.

Capital Maintenance

18


Capital charge for the investment in each tranche of the securitisation securities differs since the exposures are different. Financial institutions (except credit foncier companies) must assess the risk of the invested securities and comply with the following regulations prescribed by the Bank of Thailand.

(1) Financial institutions shall treat the securities in their trading books in accordance with capital maintenance regulation stipulated in the notification of the Bank of Thailand regarding supervisory regulation for market risk and capital charge for market risk of financial institutions.

(2) Financial institutions (except credit foncier companies) shall treat the securities in their banking books as follows:

Tranche of Securities

Capital Charge

FI Investing in the Securities is the Originator

FI Investing in the Instrument is not the Originator

Securities which the financial institution is responsible for are in the first loss tranche.

The value or exposure shall be deducted from the total capital of the financial institution. Upon the enforcement of the notification of the BOT re: Supervisory regulation on capital and the notification of the BOT re: components of capital in accordance with Basel II, the financial institution shall deduct the amount of the obligations to each SPV from tier 1 and tier 2 capital, at 50% each but not exceed the capital needed to be maintained if the asset still remains on the book.

The value or exposure shall be deducted from the total capital of the financial institutions. Upon the enforcement of the notification of the BOT re: Supervisory regulation on capital and the notification of the BOT re: components of capital in accordance with Basel II, financial institution shall deduct the amount of the obligations to each SPV from tier 1 and tier 2 capital, at 50% each.

19



Capital Charge



Securities which the financial institution is responsible for are in second loss tranche or mezzanine tranche

1) Where there are 2 tranches of securitisation securities, the risk weight of this tranche shall equal to the average risk weight of the underlying assets.

2) Where there are 3 tranches or more than 3 tranches of securitisation securities, the following shall be applied.

2.1) FI shall use the risk weight of 1, if the first loss facility has adequate protection against the risk, where the adequacy of the first loss facility must be assessed by an external rating agency or an independent unit of the originating FI.

2.2) FI shall deduct such value or exposure from its total capital, if the first loss facility has inadequate protection against the risk. Upon the enforcement of the notification of the BOT re: Supervisory regulation on capital and the notification of the BOT re: components of capital in accordance with Basel II, the financial

Same as the originator.

20



Capital Charge



institution shall deduct the amount of the obligations to each SPV from tier 1 and tier 2 capital, at 50% each.

Securities which the financial institution is responsible for are senior tranche or above.

The risk weight of the securities in this tranche shall equal to the average risk weight of the underlying asset.

Same as the originator.


Financial institutions investing in securitisation securities shall count the following persons in the large exposure calculation in accordance with the notification of the Bank of Thailand re: supervisory regulation on large debt exposure (Single Lending Limit).

(1) SPV that is the issuer of the securitisation securities

Value of the securitisation securities issued by each SPV invested by a financial institution when added to the amount of granting of credits, investments, contingent liabilities or credit-like transactions extended to such SPV, at the end of the day, shall not exceed the legal limit of such financial institution.

(2) Underlying assets that are corporate loans

Financial institutions shall calculate the exposure to each of the underlying asset arisen from investment in securitisation securities which reflects the tranche of the securitisation securities invested by the commercial bank such as sensitivity consideration of the investment in securitisation securities to change of creditworthiness of each underlying assets. When adding those exposures to the granting of credits, investments, contingent liabilities or credit-like transactions extended to such debtor and at the end of the day, it shall not exceed the legal limit

21


of that financial institution. If there is any inquiry, financial institutions shall consult the Bank of Thailand.

Financial institutions which invest in securitisation securities must establish internal report systems to control their exposures arisen from each underlying assets at the end of the day not to exceed the rate prescribed by the Bank of Thailand and shall have supporting documents available for the inspection of the Bank of Thailand or to submit the copy to the Bank of Thailand upon request.

Aggregate Limit or Investment Ceiling

The Bank of Thailand may prescribe an aggregate limit or investment ceiling of a financial institution in securitisation securities, which the underlying assets concentrate too highly in one business or industry, or region in order to prevent excessive concentration risk.

(7) Other Functions related to securitisation

Other functions related to securitisation are (7.1) registrar4, (7.2) debenture holders’ representative/ trustee4, (7.3) securitisation arranger5, (7.4) financial advisor5, (7.5) swap counterparty6 which the Bank of Thailand has granted permission to financial institution to perform. Financial institutions shall strictly comply with the regulation prescribed by the Bank of Thailand.

5.3.3 Application of financial institutions for functions other than the guidelines in this Notification

The regulations prescribed within this Notification are minimum supervisory framework for securitisation business since regulations cannot be provided for every securitisation type and structure. Hence, if the structure of any securitisation of a financial institution does not follow the framework and regulations prescribed within this Notification or if any financial institution would like to perform other securitisation functions beyond those granted by the Bank of Thailand such as early amortization feature, etc., it

4 In accordance with the notification of the Bank of Thailand regarding permission for commercial banks to undertake securities business or notification of the Bank of Thailand re: permission to finance companies to undertake business related to securities business 5 In accordance with the notification of the Bank of Thailand regarding permission for commercial banks to provide supporting functions and other services and notification of the Bank of Thailand regarding permission for finance companies and credit foncier companies to provide supporting functions and other services 6 In accordance with the notification of the Bank of Thailand regarding permission for commercial banks to undertake market derivatives

22


must first consult with the Financial Institution Applications Department, Supervision Group of the Bank of Thailand prior to conducting the transactions.

5.3.4 Repurchase of assets from SPV

Originating financial institutions must not purchase the assets back from any SPV except under the following cases.

(1) Representations and warranties shall mean conditions specified in advance that if the underlying assets that originating financial institution transferred to the SPV contains features that do not match the conditions of the purchaser and the originator previously specified in writing prior to the transfer date, examples of such conditions are repayment history, ratio of credits to collateral, etc. , the financial institution is able to transfer the new assets matching the agreed conditions to the SPV. Financial institutions, however, must comply with the following regulation.

(1.1) Repurchase conditions must be in line with general market practice and the originating financial institution must be able to inspect and verify the various stipulated conditions pertaining to the repurchase to determine if it is able to comply with during the transferring period.

(1.2) Financial institution has examined the quality of the transferred underlying assets prior to setting various conditions requiring repurchasing of unqualified assets.

(1.3) Repurchase conditions shall not be linked with the deterioration of quality of the underlying assets, SPV’s business conduct, and issued securities.

(2) Clean-up call shall mean where the financial institution has the right to purchase remaining assets from the SPV at the conclusion of the program where the value of the remaining assets is less than or equal to 10% of the value of the assets transferred to the SPV. Financial institution purchasing the assets may be the originator or service/back-up servicer and the following regulations shall be observed:

(2.1) Purchase price must be at fair value on the date of repurchase.

(2.2) Financial institution is able to purchase the remaining impaired assets from the SPV. However, the purchase price must be at fair value on the date of the repurchase and the financial institution must not be obligated to the investors for the losses of the underlying assets.

23


5.3.5 Disclosure

(1) Originating financial institutions must prepare written document such as annual report or other type of reports , at the minimum, the following information to the stakeholders.

(1.1) Objective, process and procedures of the Securitisation including information of the assets, e.g. type of assets, volume of disposed assets, quality of disposed assets, provision for losses, etc. This is to allow the stakeholders to understand the risk from securitisation business as well as for the investors to recognize investment risk, prepayment risk, and interest rate risk from late payments and losses from the default of the assets.

(1.2) Where the originating financial institutions perform other functions in a securitisation program which results in exposure for the financial institutions, they shall disclose their obligation to the SPVs such as value of securities investment or risk arisen from performing such functions, etc. for the benefits of the stakeholders.

(1.3) Detailed information on accounting policy of the transactions such as recording as sale or borrowing, revenue recognition from sale, etc.

(1.4) Investing in the securitisation securities is not deemed as deposits with or loans to originating financial institutions. Hence, information disclosed by financial institutions to stakeholders must not be intended to advertise or mislead the investors.

Furthermore, financial institutions shall also comply with the disclosure regulation stipulated in the accounting practice for securitisation or related accounting standards.

(2) Non-originating financial institution performing other functions that related to the securitisation either as a servicer/back-up servicer, or provider of liquidity facility to the SPV, etc. which may result in an exposure to financial institution, it shall prepare written documents such as an annual report or other type, in order to disclose its obligation to the SPV, such as value of securities investment or risks arisen from such functions, etc. for the benefits of the stakeholders. Furthermore, the financial institution shall also comply with the disclosure regulation stipulated in the accounting practice for securitisation or related accounting standards.

24


5.3.6 Other stipulations

(1) Financial institutions must examine to ensure strict compliance with relevant laws or regulations. For example, it must observe the accounting standards or guidelines of the Federation of Accounting Profession, etc.

(2) The Bank of Thailand is empowered to impose sanctions on financial institutions in accordance with the law or to reserve the right to require financial institutions to obtain approval from the Bank of Thailand prior to undertaking any securitisation transaction, in the following cases.

(2.1) Any financial institution breaches or fails to comply with the regulations within this Notification.

(2.2) Any other case deemed by the Bank of Thailand that may affect the public’s security or welfare.

(3) The Bank of Thailand may impose or amend regulations, procedures and conditions related to securitisation business for financial institutions to observe as deemed appropriate. The Bank of Thailand may prescribe aggregate limit or investment ceiling in securitisation securities or types of assets in the securitisation business as well as instructing financial institutions to increase capital charges for securitisation business if discovered that they have exposures more than the normal capital charges. Moreover, financial institutions performed other functions related to securitisation business must submit reports in the format or data sets as prescribed by the Bank of Thailand.

6. Effective Date

This Notification shall come into force as from the day following the dates of its publication in the Government Gazette.

Announced on 3rd August 2008

(Mrs. Tarisa Watanagase) Governor The Bank of Thailand Disclaimer: The Association of International Banks, its directors, members and employees take no responsibility, accept no liability from any use or misuse of the information in these pages and do not attest to the correctness of the translation, if any. This translation contains privileged information. It is intended for the named recipients only. No portion of this translation may be transmitted by any means without prior written permission from the Association of International Banks. All rights reserved.

25


Attachment

Repealed/Amended Notification and Circulars

No. Dated of the Bank of Thailand

Notification / Circulars

Type No. Regarding

1 21 September 2006 The Bank of Thailand Notification

Permission for commercial banks to conduct securitisation (Circular No. RPD. (21) C. 122/2549 dated 17 October 2006)

2 22 June 1998 The Ministry of Finance Notification

Permission for finance companies, finance and securities company, and credit foncier companies to conduct securitisation projects to be proposed to the SEC Office (Circular No. BOT. Ngor. (C) 2458/2541 dated 2 July 1998)

unofficial translation this translation is for the convenience of … · 2017. 9. 1. · 5 bot...

Documents