Comments added 3 Jan 2002: Asian Securitisation 2001 shows both hope and despair
Looking back at the year just passed, Asian securitisation scenario for 2001 has both elements of hope and despair. While activity is picking up fast in pockets such as Korea and Singapore, Asia by and large remains a dormant market. Some activity was seen in Malaysia where banks where bank restructuring body Dhanaharta is engaged in securitising non-performing loans. There were lots of noises from Philippines. In India, scattered bilateral deals continue to take place but there is no cohesive action, pending various regulatory difficulties.
There are two prime reasons which continue to hamstring the market: regulatory inaction, and excessive liquidity with banks. Regulatory unclarity has stifled the growth of securitisation in Thailand and Taiwan. Hong Kong banks continued to be flush with funds which disincentivised any substantial securitisation activity. In Singapore, the remarkable synthetic deal by DBS Bank was triggered more for regulatory capital purposes than liquidity.
Rating agency R&I recently reviwed the Asian scenario (minus Japan). It concluded as under:
- Despite its future growth potential, the securitization market in Asia (excluding Japan) will grow only slowly in the short term due to the recent sluggish economy and ample liquidity situation in the region, which has reduced the demand for securitization funding. Also, underdeveloped market infrastructures, including bottlenecks in the legal system, will continue to impede development of the market.
- The non-performing loans and the credit crunch in the banking system, which are placing pressure on the regional economies, can be used to rekindle the growth of the securitization market. The key is the role of the public sector and its willingness to utilize securitization as an effective tool to develop the debt market and revive the economy.
Full text of the R&I report can be found at this link. Also see Vinod Kothari's interview on financeasia.com here. Also see Rob Davies' interview of Michael Ye of Moody's on how he sees securitisation market in Asia shaping up in 2000 – click here.
Securitization activity in Asia has been picking up smartly of late. Japan was a late starter but for the last few years, notably year 1998 and thereafter, the growth has been triple digit. See individual country pages, and for an index, go to our jump-up page here.
Pre-1997 crash, the Asian tigers were talking high about securitization. Several transactions had already been done in Thailand. Post crisis, all that loud talk came to almost a complete silence.
As of now, securitization activity has picked up in pockets – Japan on the one hand, and Korea, Hong Kong, Singapore, Malaysia and India on the other. Mainland China, and Philippines have been making noises about securitization. One of the first deals in Islamic countries, a securitization transaction, following Islamic principles, also came about in Saudi Arabia –see news report on our news pages here.
Several countries have thought it fit to enact a regulatory framework to kickstart securitization activity. For text of laws in various countries, see our laws section here.
Korea and Thailand were among the early countries to enact legislation for securitizations. Inspite of the law, difficulties remain in Thailand where securitization volumes have not appreciably picked up – see country page here. However, a smart market is coming up in Korea – see country page here.
Hong Kong has not enacted any law, but being a common law country, there is no major impediment to securitization. Hong Kong has for quite some time been considered as the mecca of Asian securitization minus Japan, but of late, there have been more transactions from other countries such as Korea than from here, except for some pathbreaking deals as a synthetic securitization by ABN Amro bank in 2000.
Pakistan has also put in place securitisation rules, but not much activity is seen in the country – see country report.
Malaysia was a recent country in April 2001 to formulate guidelines for securitization and it is evident that a lot of securitization activity will take place here.
In Singapore regulatory guidelines have been placed, but there is no law as such on securitization.
Fitch IBCA in its newsletter Global Securitization Quarterly April 2001 talks of the developments in Asian markets: "It was an amazing year in Asia-Pacific structured finance, as the market reached a new stage of its development. In 2000, there were an unprecedented number of completed international transactions, signalling the increased depth in the originator and investor markets. In many of those issues, innovative structures were employed to efficiently and effectively provide originators with their required funding. Including domestic structured markets, total volume of structured finance issuance reached over US$32 billion equivalent, with an overwhelming representation from South Korea."
Fitch expects the volume in Asia to be close to USD 28 billion in 2001. Fitch says: "Because of specific market conditions and the conducive stance by many of the regulatory authorities, Fitch expects the domestic market to rapidly develop in Singapore, Malaysia, and, possibly, Thailand. Positive developments on the regulatory front, such as the creation of an Asset Management Company in Thailand, securitisation guidelines to be passed in Taiwan, and de-regulation of the Korean Won substantiate further sustained growth."
The Fitch report says that about 38% of the Asian issuance was in form of CDOs, followed by trade receivables (20%), non performing loans (16%), equipment leases (10%), etc.
Securitisation in Asia