Mortgage-Backed Securities Markets in Asia
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On-line edition: Free of Charge
Hardcopy price: $35.00 ISBN: 971-561-209-1
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(Pub. Date: 1999)
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ADB has been playing a catalytic role in developing domestic bond markets in its member
countries in view of new economic trends in the region, including the (i) huge financing
requirements of massive infrastructure projects; (ii) declining fund flows from bilateral and
multilateral development agencies; (iii) financial weakening of banking institutions due to non-
performing real estate loans; (iv) move from equity to debt instruments for corporate financing;
and (v) shift in sources of bond financing from international to domestic markets.
For those economies affected by the Asian financial crisis, asset securitization represents
a critically important process in restructuring bank assets. Banks in financial distress can
improve their capital adequacy and liquidity ratios by selling their assets, both performing and
nonperforming, through asset securitization. In response to this need, ADB undertook
a regional study to examine the feasibility of creating mortgage-backed securities markets
in the People's Republic of China, India, Indonesia, Republic of Korea, Malaysia, Pakistan,
Philippines, and Thailand.
Until this study was made, there had been no thorough examination of the reasons why
the mortgage-backed securities markets have not developed, nor of the feasibility of
introducing mortgage-backed securities in the region's bond markets.
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List of Figures and Tables, Foreword, Preface, and Acronyms and Abbreviations [ PDF: 103kb | 35 pages ]
The Feasibility of Creating Mortgage-Backed Securities Markets in Asian Countries [ PDF: 212kb | 62 pages ]
by Renato Reside, S. Ghon Rhee, and Yutaka Shimomoto
Introduction
Mortgage-Backed Securities (MBSs)
Domestic Bond Markets
Development of Long-Term Bond Markets
Improvement of Corporate Governance
Reinforcement of Regulatory and Supervisory Arrangements
Expansion of the Investor Base
Further Improvement of the (Equity) Market Infrastructure
Reevaluation of Controls on Market Volatility
Domestic Mortgage Loan Markets in Asia
Feasibility of Creating MBSs Markets
Feasibility of Establishing an MBSs Market in China
Feasibility of Establishing an MBSs Market in India
Feasibility of Establishing an MBSs Market in Indonesia
Feasibility of Establishing an MBSs Market in Korea
Feasibility of Strengthening Cagamas and the MBSs Market in Malaysia
Feasibility of Establishing an MBSs Market in Pakistan
Feasibility of Establishing an MBSs Market in the Philippines
Feasibility of Establishing an MBSs Market in Thailand
Policy Recommendations for the Region
Selected References
Chapter 1. The Mortgage-Backed Securities Market in the People’s Republic of China [ PDF: 131kb | 65 pages ]
by Bob Yau-ching Chan
Overview of the Fixed-Income Securities Markets
The Role of the Fixed-Income Securities Markets
Regulation of Fixed-Income Securities
Treasury Securities and Bank Deposits
Interest Rates and Yield Curves
Treasury Security Issuance
Secondary Market Activities
Other Fixed-Income Securities
Development of the MBSs Market: Potentials and Obstacles
Overview
Housing Development Policy of the Government
Legal and Regulatory Obstacles
Institutional Obstacles
Secondary Market for MBSs
Inadequacy of Information
Taxes and Transaction Costs
The Residential Housing Market
Overview
Current State of the Residential Housing Market
Ownership and Property Rights
Demography and Housing Occupancy
Housing Prices
The Housing Reform Program
Size and Significance of Housing Funds as a Financing Source
Bank Mortgage Lending and Interest Rates
Primary and Secondary Markets
Legal and Institutional Framework for Asset Securitization
Transfer of Property Rights
Foreclosure Procedures and Experience
Primary Lenders
Feasibility of Launching Special-Purpose Vehicles and MBSs
Overview
Supply Analysis
Demand Analysis
Size of Residential Mortgage Financing
Securities Regulation and Securities Laws
Launching the MBSs Market
Other Future Market Developments
Conclusion
Selected References
Chapter 2. The Mortgage-Backed Securities Market in India [ PDF: 252kb | 78 pages ]
by Keki M. Mistry
Introduction
Market Structure and Dimensions
Issuance of Debt Securities
Rating of Debt Instruments
Investors in Debt Instruments
SLR Requirements
Marking to the Market
Tax Provisions
Trading System
Repo Markets
Clearing and Depository System
Underwriting of Debt Instruments
Yield Curve Distortions
Recent Reforms in the Debt Market
Wholesale Debt Market
The Debt Market in 1997–1998
Obstacles to the Development of the Fixed-Income Securities Market
Shortcomings of the Indian Debt Market
Suggested Reforms in the Debt Market
Debt Market Opportunities and Prospects
The Mortgage-Backed Securities (MBSs) Market
Residential Mortgage Financing
Introduction
Housing Shortage in India
Increasing Urbanization
Constraints on the Growth of Housing Stock
Evolution of Housing Finance in India
Housing Development Finance Corporation (HDFC)
National Housing Bank (NHB)
Sources of Funds for Housing Finance Companies
Lending Rates
Funding Costs
Management of Interest-Rate Risk and Maturity Mismatches
Low Dependence on Housing Loans
Fiscal Incentives for Housing
Flow of Funds to the Housing Sector
Loan Refinancing by NHB
Need for a Dynamic Housing Finance System
Future Strategy
Asset Securitization
Need for Securitization in India
Securitization Attempts
NHB’s Proposed Pilot Securitization Program
Case for Developing a Secondary Mortgage Market in India 157
Securitization Issues
Feasibility of Launching a Special-Purpose Vehicle and MBSs
Structuring the Instrument
Servicing Agents
Yield and Pricing
Special-Purpose Vehicle (SPV)
MBSs Market Regulator
Liquidity
Mortgage Trustee
Securitization Methods
Accounting Treatment under Both Methods
Conclusion
Chapter 3. The Mortgage-Backed Securities Market in Indonesia [ PDF: 249kb | 67 pages ]
by Farid Harianto
The Fixed-Income Securities Market
Primary Market Activities
Secondary Market Activities
Regulatory Structure
Primary and Secondary Market Infrastructure
Credit-Rating Agency
Major Obstacles to the Development of the Indonesian Bond Market
The Demand Factor: Small Investor Base and the Moral Hazard of a Buyer Market
The Supply Factor: Few High-Quality Issuers
Market Institutions and Efficiency
Current State of Residential Mortgage Financing
Housing Development Policy of the Government
House Ownership and Land Tenure
Magnitude of Residential Mortgage Financing
Term Structure of Residential Mortgage Loans
Mortgage Loan Underwriting
Summary
Legal and Institutional Framework for Asset Securitization
Overview
Regulatory Agencies
Tax Issues
Securitization Market Players
Investors and Issuers
Feasibility of Launching a Secondary Mortgage Lender: A Preliminary Appraisal
Basic Assumptions
SML Operating Characteristics
Preliminary Results
Discussion and Conclusions
Selected References
Chapter 4. The Mortgage-Backed Securities Market in Korea [ PDF: 579kb | 73 pages ]
by Pyoungho Shin
Financial Development Policy
Status of the Korean Bond Market
Development of the Market
The Primary Market
The Secondary Market
Regulatory Structure of the Fixed-Income Securities Market
Reform of the Financial Regulatory Framework
Bond Market Infrastructure
Development Constraints on the Bond Market
Underdeveloped Government Securities Market
Inappropriate Benchmark Bonds
Role of Public Policy in Developing Government Securities
Reorganization of the Fixed-Income Securities Market
Housing Finance Market
Housing Development Policy of the Government
House Ownership
Real Estate Tax
Primary Market Lenders
Mortgage Loans
Credit Analysis
Foreclosure
Feasibility of a Secondary Mortgage Market
Need for Liquidating Mortgage Loans
Preconditions for Establishing an MBSs Market
Demand for MBSs 310
Estimated Growth of Residential Mortgage Loans
Structure of the Secondary Mortgage Facility
Issues Related to the Development of the Secondary Mortgage Market
Appendix: Economic Policy Issues of the New Government
Selected References
Chapter 5. The Mortgage-Backed Securities Market in Malaysia [ PDF: 219kb | 68 pages ]
by Huang Sin Cheng
The Fixed-Income Securities Market
Background and Status
Long-Term Fixed-Income Securities
Cagamas Berhad
Primary and Secondary Market Infrastructure
Private Debt Securities
Development of the PDSs Market
Regulatory Structure of the Fixed-Income Securities Market
Related Developments
Constraints on the Development of the Fixed-Income Securities Market
Need for Longer-Term Bonds
Lack of a Market-Based Benchmark
Insufficient Information on Bond Trading
Low Supply of Bonds
No Bond Futures Market
Narrow Investor Base
High Liquidity and Reserve Costs
No Borrowing and Short Selling
Regulatory Constraints
Residential Mortgage Financing
Housing Development Policy
House Ownership
Land Tenure
Taxes
Residential Mortgage Financing in Relation to Bank Loans, Assets, and GDP
Primary Market Lenders
Types of Mortgage Loans
Bank Spread
Average Loan Size
Credit Evaluation of Housing Loan Borrowers
Latest Developments in the Property Sector
Legal and Institutional Framework for Asset Securitization
Legal and Regulatory Treatment of Housing Finance
Securitization Process
Securitization Market Players
Regulation of the PDSs Market
Feasibility of Mortgage-Backed Securities
Benefits of Mortgage-Backed Securities
MBSs Demand and Supply
The Secondary Mortgage Market
Conclusion
Latest Developments
Chapter 6. The Mortgage-Backed Securities Market in Pakistan [ PDF: 327kb | 62 pages ]
by Naz Chohan
The Fixed-Income Securities Market
Structure of the Financial Sector
Financial Sector Reforms
Market Infrastructure
The Fixed-Income Market
Obstacles to the Development of the Fixed-Income Securities Market
Introduction
Institutional Obstacles, Taxes, and Transaction Costs
Legal and Regulatory Obstacles Affecting the Fixed-Income Securities Market
State of Residential Mortgage Financing
Introduction
The Housing Market
Housing Policy of the Government
Regulatory Set-up
Primary Market Lenders
Funding Sources of Primary Market Lenders
Operations of Primary Market Lenders
Constraints on the Development of Housing Finance
Important Developments
Legal and Institutional Framework for Asset Securitization
Introduction
Securitization Process
Asset Securitization Law
Market Players in Securitization
Regulatory Body
Feasibility of Launching Special-Purpose Vehicles and MBSs
Introduction
Adequacy of the Legal and Regulatory Framework
Market Demand for MBSs
Growth of the Residential Mortgage Loan Market
Selected References
Chapter 7. The Mortgage-Backed Securities Market in the Philippines [ PDF: 705kb | 90 pages ]
by Renato Reside
The Fixed-Income Securities Market
Current State of the Fixed-Income Securities Market
The Wholesale Financial Markets: Recent History and Structure
The Philippine MBSs Market: History and Structure
Obstacles to the Development of the Fixed-Income Securities Market
Macroeconomic Instability
Taxation of Financial Intermediaries and Transactions
Inadequate Clearing and Settlement Systems
Inadequate Credit-Rating Capacity
Lack of Reliable Benchmark Pricing Mechanism for Fixed-Income Securities
Lack of Facilities for Financing Inventories of Debt Securities
Mortgage and Mortgage-Backed Securities Markets
Current State of Residential Mortgage Financing
Government Housing Policy
Profile of the Housing Industry in the Philippines
The Crisis in Low-Cost Housing
Middle-Class to Upscale Housing: Imminent Dangers
Instruments in the Housing Finance Market
Housing Industry Indicators
Legal and Institutional Framework and Obstacles to Securitization
Overview
Asset Securitization Law
Traditional (American) and Philippine MBSs Transactions Compared
Impediments to Securitization
Other Impediments
Summary of Impediments to Securitization in the Philippines
Feasibility of Launching Special-Purpose Vehicles and MBSs
A Growing Primary Mortgage Market Stimulates the Need for a Secondary Mortgage Facility
MBSs Supply and Demand
Estimated Growth of Residential Mortgage Loans
Proposed SMI Structure
Initial SMI Capitalization
Initial SMI Profitability
Proposal to Develop an SMI in the Philippines
Selected References
Chapter 8. The Mortgage-Backed Securities Market in Thailand [ PDF: 705kb | 90 pages ]
by Ballobh Kritayanavaj
The Fixed-Income Securities Market
Primary Market
Current State of the Bond Market
Issuance of Fixed-Income Securities in the Primary Market
Regulatory Structure
Secondary Market Infrastructure
Obstacles and Opportunities for the Development of the Fixed-Income Securities Market
Government Support
Legal and Regulatory Obstacles
Lack of Government Bonds and Absence of Benchmark Rates
Inactive Demand Among Potential Investors
Inadequate Secondary Market Infrastructure
Macroeconomic Instability and Overall Financial Weakness
Obstacles to the Development of the Mortgage-Backed Securities Market
Current State of Residential Mortgage Financing
Government Policy on Housing and Housing Finance
Promotion of Secondary Mortgage Market and Securitization
Current State of the Housing Market
Current State of Housing Finance
Weaknesses in the Primary Mortgage Market
Legal and Institutional Framework of Asset Securitization
Development of a Secondary Mortgage Market and Asset Securitization in Thailand
Emergency Decree on Special-Purpose Vehicles for Asset Securitization (A.D. 1997 )
Emergency Decree on Secondary Mortgage Corporation (A.D. 1997)
Effects of the Secondary Mortgage Market and Mortgage Securitization on the Housing Sector
Feasibility of Launching Special-Purpose Vehicles and Mortgage-Backed Securities
Adequacy of the Legal and Regulatory Framework
Estimated Growth of Residential Mortgage Loans
Potential Market Demand for Mortgage-Backed Securities
Activities and Operating Plans of the Secondary Mortgage Corporation (SMC)
Contributors and Index [ PDF: 128kb | 36 pages ]
All rights reserved
First published 1999
The views and opinions expressed in this publication
are those of the individual authors and do not necessarily represent the views of the Asian Development Bank.
ISBN 971-561-209-1
Publication Stock No. 020699
Published by the Asian Development Bank
P.O. Box 789, 0980 Manila, Philippines
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