Securitisation has been recognised well enough for its role in deepening the local financial market for many years, with a law passed in 1997 to set the framework for transactions. The Secondary Mortgage Corporation (SMC) was set up in the same year to play a similar role as Fannie Mae in the United States, which was set up to promote home ownership by purchasing mortgages from originators, thus freeing up the originators' capital so they could originate more mortgages.

Siriwat Phromburi, the president of the SMC, said purchases of assets from financial institutions by the company had been hindered by the economic crisis and excess liquidity in the banking system. But market activity is likely to recover strongly over the next few years, as consumers seek fixed-rate mortgages.

Several banks have already shifted strategies toward floating interest rates from fixed ones as a way to reduce the risk of higher financial costs amid rising interest rates.

"The market environment had not been supportive for the SMC. But we continued to receive support from the government which viewed that the agency did not deserve to die," Mr Siriwat said.

Under securitisation, the SMC would buy long-term assets from financial institutions using funds raised from bonds. The funds collected from the loans would then be used to pay the interest and principal on the bonds.

The transactions would help borrowers gain better conditions, as the funding costs of their mortgages would be fixed at a rate lower than in the money market.

Banks, meanwhile, will have lower operating costs as they can book returns from the loans upfront and cut their provisioning requirements. The role of banks should be confined to commercial purposes, such as short-term overdraft facilities or loans for working capital, not long-term ones such as mortgages.

In 2002, the SMC's outstanding loans purchased from banks stood at two billion baht. It expects to see outstanding loans of five billion baht by the end of this year before quadrupling the figure to 20 billion baht next year. The growth would help the SMC cap its operating cost at 0.25%, relatively low when compared to the costs of other financial institutions.

"The SMC expects to be more active in the primary market in 2005 after the excess liquidity dries up in mid-2005," said Mr Siriwat.

The SMC has formed alliances with Aeon Thana Sinsap, Amway and several insurance firms to have the salespeople of the private firms introduce new mortgagers to refinance with the SMC.

The SMC now offers loans with fixed interest rates for the entire maturity of 30 years, with plans for the rescheduling at fixed periods every three, five and seven years.

"Market response to securitisation deals has been lukewarm, as it is a new concept. But securitisation will serve as a key tool for the private and public sectors in raising funds. The market will gradually accept more types of assets back, as they are secured debt instruments," Mr Siriwat said.

Pises Sethsathira, head of the Bangkok Capital Market Practice for the consultancy Allen & Overy, agreed the number of securitisation transactions would surge in the future and the types of the backed assets would expand to others such as auto leasing and credit card receivables, rather than mortgages alone.

But the government needs to amend the Securitisation Act to cover more complicated features of securitised instruments such as future receivables.

The government's asset securitisation to fund infrastructure and development projects would also help spur the growth of securitisation transactions.

Chuanpis Chaimuenwong, governor for the National Housing Authority, said it had conducted four rounds of securitisation so far to raise more than three billion baht to finance low-cost housing estate projects.

The NHA might not conduct another securitisation deal next year, as it had sufficient funds to finance future projects, she added.