Thailand Experience of Developing Economies in Securitization: Thailand Mr. Thirachai Phuvanatnaranubala Secretary-General, Securities & Exchange Commission, Thailand At the ASEAN+3 Workshop on the Rise of Asset Securitization in East Asia (November 7-9, 2005, Shanghai)

Thailand 2 Experience of Developing Economies in Securitization: Thailand 1.Step of Development 2.Market Performance 3.Impediments 4.Future Need for Securitization 5.Conclusion

Thailand 3 1. Step of Development Policy first conceived under 7 th Plan ( )  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

Thailand 4 1. Step of Development Established Secondary Mortgage Corporation (Jan. 1998)  To carry out businesses:  Secondary mortgage portfolio business  Housing mortgage securitization business

Thailand 5 2. 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 Source : Thomson Financial YE 2004, cited by HSBS, Structured Capital Markets in Asia, 16 June 2005

Thailand 6 2. 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

Thailand 7 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 ( ) 3. Impediments

Thailand 8 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

Thailand 9 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

Thailand 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

Thailand Future Need for Securitization Rapid growth in credit market (housing mortgages, credit cards)

Thailand 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

Thailand 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% 45% 58% Source of Financing Mega Projects Source : Ministry of Finance Note : * State-owned enterprises

Thailand 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