Secondary Mortgage Market: Thailand

Transcription

1 Secondary Market: Thailand Secondary Markets: Asia Forum 2013 Bangkok, Thailand July 31, 2013 Pornnipa Hachaiyaphum President, Secondary Corporation (SMC)

2 Outstanding Loans loans increased at a compound annual growth rate of 9.7% Source: Real Estate Information Center and Office of the National Economic and Social Development Board 2

3 to GDP Ratios to GDP ratio of Thailand is rather low compared to other countries As of December 2012 Source: Housing Finance Policy in Emerging Markets, The World Bank Source: Korea Housing Finance Corporation, Japan Housing Finance Agency and Cagamas Berhad 3

4 Lenders Commercial banks hold about 60% of mortgage loans and 2 SFIs hold 40% Banks GHB GSB Source: Bank of Thailand, Government Housing Bank, Government Saving Bank and the Office of Insurance Commission 4

5 Housing Finance Highlights Deposits are almost entirely source of funds for housing (deposit-based lending) Most of mortgage products are adjustable-rate loans with low initial fixed interest rates (teaser rates) for a short period not exceeding 3 years, for example Bank A Bank B Bank C 3.25% for year 1 and year 2, MLR 1.0% afterwards 2.75% for year 1, 4.25% for year 2, MLR -1.1% afterwards 0% for 9 months, MRR 2.0% up to year 2, MRR 0.5% afterwards Note: current MLR = 7.0%, MRR = 7.125% Adjustable rates are below MLR/MRR (Minimum Loan Rate/Minimum Retail Rate) The longest mortgage terms are usually years Debt to income ratios are about 40% - 60% Loan to value ratios are typically high: above 90%, sometimes 100% or higher, including loans for furniture, decoration and MRTA 5

6 Capital Requirement Regulatory Risk weights of mortgage loans regulated by the Bank of Thailand are attached to Loan-to-Value ratios :- Risk weight Property Type LTV Within Above LTV limit LTV limit Purchase price Condominium up to 90% 35% 75% < Baht 10 million House up to 95% 35% 75% Purchase price >= Baht 10 million All up to 80% 35% 75% 6

7 Risks of Current Housing Finance System Liquidity Risk Interest Rate Risk Credit Risk Financial Instability 7

8 Challenges of Deposit-Based Lending During , mortgage loans and loans increased more than deposits mortgage loans 11.5% (CAGR) Loans 9.3% Deposits/BE 7.9% Loan to deposit ratios grew from 88.3% to 93.1% From Aug. 2016, the coverage of insured deposits will decrease to Baht 1 million. Deposits of Baht 6.73 trillion (64%) */ will not be insured. A significant portion could be transferred to capital markets */ As of May 2013 Source: Bank of Thailand Deposits alone will not be enough to finance a rapid growth of mortgage loans 8

9 Opportunity towards Capital Markets Long - term source of funds grew at a compound annual growth rate of 14.4% compared to mortgage of 9.7% Investments to GDP increased sharply from 25% to 34.3% Capital markets tend to grow faster than money market along with more mature financial markets Capital market will become a major source of funds for housing market Billion Baht TYPE CAGR% Life Insurance Investment , % Social Secuity Fund Investment % Provident Funds NAV % Government Pension Fund NAV % Total 2, , % Source: Office of Insurance Commission, Social Security Office, Securities and Exchange Commission and The Government Pension Fund 9

10 Secondary Market Primary mortgage market is a market where new mortgages are originated Secondary mortgage market is a market where existing mortgages are bought and sold Secondary mortgage market is a mechanism to raise funds from capital markets for housing markets Borrower Cash Lender Cash/ Securities Buyer Securities (MBS/non MBS) Cash Investor Primary Market Secondary Market 10

11 Secondary Corporation (SMC) Secondary Corporation (SMC) was established in 1997 by an Emergency Decree on Secondary Finance Corporation B.E SMC is a state enterprise, wholly owned by the Ministry of Finance Its main objectives is to develop the secondary mortgage market in order to raise sufficient and consistent funds for housing finance through securitization Mission The growth of primary mortgage market The development of capital market The availability of long-term fixed rate loans 11

12 Housing Finance in 2020 If growth rates are as before, a shortage of funds for housing will be unavoidable. ML/GDP 27.1% ML/GDP 30% ML/GDP 20.2% Annual growth rate assumptions GDP 5.8% Deposits 8.0% ML (normal) 9.7% ML (Target) 11.1% Other loans 9.1% How can SMC help achieve this target? Source: Calculated by Secondary Corporation 12

13 SMC s New Vision and New Business Model New Mission SMC is committed to developing the secondary mortgage market through complementing the housing finance system so that the public may have their own house New Business Model Developing non-existent products in Thailand Seller Existing Financial institutions Existing Securities -Backed Securities (MBS) Insurance New Insurance New Companies New Covered Bond New Reverse 13

14 Company (MC) company is a non-deposit taking mortgage lender Approved MCs will originate mortgage loans and sell them to SMC s of MCs will comply with standardization of SMC, ready to be securitized MCs will be a new distribution channel of long-term fixed rate loans Borrowers Primary Market Secondary Market Savers Floating rate Banks Deposit Fixed rate MCs SMC Securities 14

15 Insurance (MI) According to MoF s SFIs reform plan, SMC will provide mortgage insurance /guarantee in order to expand homeownership, develop housing finance and capital market and strengthen credit risk management of the banking system Without MI Down payment 10% Lending 90% Risk of banks 90% With MI Down payment 10% Risk of SMC 30% Lending 90% Risk of banks 60% LTV 90% LTV 60% (LTV threshold) Note: Example only, the structure of MI is still under discussion 15

16 Possible Impacts of New Model in 2020 With more market shares in mortgage loans, SMC can help raise funds for housing market, expand homeownership and develop capital market 2.5% of Bt. 4,825 billion Funds amounting to Bt. 120 billion for 60 billion households 5% of Bt. 4,825 billion Funds amounting to Bt. 240 billion for 120 billion households 10% of Bt. 4,825 billion Funds amounting to Bt. 480 billion for 240 billion households Note: Scenarios calculated by Secondary Corporation 16

17 Benefits of Secondary Market Banks Better risk management and efficiency management Financial stability and well-being of the nation Capital Market Public More products available for investors Easier access to housing finance & mortgage securities, Developer More sufficient and consistent funds from house buyers 17

18 THANK YOU Secondary Corporation 333 Viphavadee-Rangsit Rd, Lao Peng Nguan Building 1, 22 nd Floor Soi Chaoey Phuang, Jomphol, Jatujak Bangkok 10900, THAILAND Tel: