Thailand must develop its securitisation market in the coming years to maintain suitable liquidity amid greater competition from regional markets once the Asean Economic Community (AEC) begins in 2016.
MBS yields will grow as the market develops, says Ms Pornnipa. TAWATCHAI KEMGUMNERD
Pornnipa Hachaiyaphum, the president of Secondary Mortgage Corporation (SMC), said in an exclusive interview with the Bangkok Post that the country's securitisation market development is third in Asean, behind Singapore and Malaysia.
Securitisation is the conversion of assets, particularly loans, into marketable securities, typically for the purpose of raising cash by selling them to other investors.
The Thai market will face even greater challenges from free capital flows with the advent of the AEC and capital market liberalisation.
Thai investors have been paying more attention to offshore investment due partly to more attractive and innovative financial products.
In the longer term, foreign institutional investors may offer securitisation in the Thai market, leading to capital outflows as well, said Mrs Pornnipa.
SMC plans to issue mortgage-backed securities (MBSs) worth 10-15 billion baht this year to institutional investors. Last year, it issued 900 million baht with a credit rating of A+.
The bigger issuance this year is in line with business growth.
"Despite higher funding costs for the product issuance compared with bonds, it's our mission to help develop the securitisation market," she said. "The yields are lower than for government bonds, but we expect the yields of MBSs to grow closer to those of government bonds with continued development."
Amid stronger market competition, SMC plans to cooperate with its regional counterparts to develop the market.
It has a deal with Malaysia's secondary mortgage corporation, Cagamas Bhd, to join forces.
Cagamas is the most active issuer of MBSs in that country.
Korea Housing Finance Cooperation of South Korea is another group active in the secondary mortgage market, with total assets equalling 700-800 billion baht.
Total assets of Thailand's SMC by comparison remain small at only 5 billion baht.
SMC maintained a total loan portfolio of 2 billion baht in recent years before rising to 5 billion baht last year.
This year's secondary mortgage portfolio of 10-15 billion baht marks a significant expansion.
"We plan to develop all strategies including products, channels, partnerships and pricing in order to meet our ambitious target this year," said Mrs Pornnipa.
SMC plans to buy 20 billion baht worth of performing mortgages from two local banks.
Under the new Basel III regulations, commercial banks have shifted to asset maintenance rather than expansion to reduce their provision burden.
"When banks sell existing mortgages to SMC, they can offer new loans," said Mrs Pornnipa.
"After several rounds, they get a new customer base at existing asset amounts without shouldering bigger provisions."
SMC will also sell its own housing loan packages through branches of its two banking partners _ Kiatnakin Bank and Tisco Bank.
Mrs Pornnipa calls it a win-win strategy for both SMC and the partners, as the two banks focus mainly on automobile and hire-purchase loans.
SMC normally offers better housing loan packages than do banks, opening more opportunities for lower-income people to own homes.
It provides the longest period for fixed interest at seven years and is considering extending the term to eight years.
"Longer terms for fixed interest rates will ease the financial burden of homebuyers," said Mrs Pornnipa. "Basically, each percentage point increase in the interest rate lifts the monthly debt instalment burden by 7%."
SMC, 100% owned by the Finance Ministry, expects a net profit of 70-80 million baht this year, up dramatically from last year's 8 million baht, supported by aggressive loan growth.
Its non-performing loans are 5.5% of total outstanding debt, with a BIS ratio of 33%, far higher than the central bank's minimum requirement of 8.5%.