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Yahoo! My Yahoo! Mail Yahoo! Search Search: Sign InNew User? Sign Up News Home - Help Navigation Primary Navigation Home Singapore Asia Pacific World Business Entertainment Sports Technology Top Stories Most Popular Secondary Navigation Singapore Asia Pacific World Search Search: DEALTALK-S.Korea banks embrace securitisation; costs weigh Reuters - Wednesday, August 5 * Woori Bank, Shinhan Bank preparing for H2 RMBS sales abroad ADVERTISEMENT * Robust mortgage demand raises securitisation need * Complex mortgage structure, immature market weigh By Kim Yeon-hee and Seo Eun-kyung SEOUL, Aug 4 - South Korean banks are set to return to the global mortgage securitisation market and diversify their funding base, even if investor caution about Asian mortgage assets has recently raised costs for their securitised debt. Following Kookmin Bank's sale of $1 billion covered bonds in May, Woori Bank is aiming to sell $500 million worth of residential mortgage-backed securities around September, said an official of the country's No. 2 lender, asking not to be identified before the bank finalised the issue. Third-ranked Shinhan Bank is also looking to sell about $500 million RMBS later this year and Korea Housing Finance is eyeing $1 billion covered bond sale in the second half, which will be its first offshore issue, according to industry sources and the agency. The moves come after South Korean banks aggressively expanded mortgage lending in the first seven months of this year, up an average 3 trillion won per month, making up for stalled loan demand from big firms and poor sales of stock funds. RMBS, debt assets based on pooled residential mortgages, are relatively new to investors in South Korea because the country has less than a decade of mortgage history. But solid underlying assets and rising apartment prices in Seoul and surrounding areas mean their mortgages have a lower chance of delinquencies. Restrictions on mortgages, through a reduced ceiling on home-backed loans, are also supporting their collateral value. "South Korean banks have a relatively low loan-to-value ratio, negligible loss ratio and attractive coupon rates considering the low-risk Korean mortgage market," said an official of Citibank Korea, who did not want to be named because he was not authorised to speak to media. "But a thin secondary market and pre-payment risks remain negative factors for the global RMBS market." PRESSURE TO SECURITISE South Korean regulators say local banks cannot help but securitise more of their mortgage assets to reduce their heavy reliance on deposits and other costly debt sales to fund home-backed loans which had soared since 2000. The loan-to-deposit ratio of South Korean banks stood at 135 percent in April, excluding funding from certificate of deposits, although it was off its peak of 142 percent in July 2008, according to Hana Financial Group's research institute. That compared with U.S. banks' 95 percent and 70 percent for Japan banks. In 2008, only 2 percent of banks' mortgage loans were securitised, out of the total of 236 trillion won at the end of last year, according to the Financial Supervisory Service . "Domestic banks issued a limited amount of MBS as the underlying assets consisted mostly of home loans based on short-term floating rates, a scheme unfavourable for securitisation," said Park Yun-woo, a senior research fellow at the Korea Capital Market Institute. "But the need for MBS is growing as their deposit base has been weakening, which could lead to a rise in funding costs and increase their vulnerability to a credit crunch." The Hong Kong Mortgage Corporation is among active buyers of South Korean RMBS, along with insurance companies and pension funds. CHALLENGES But many challenges remain, starting with a limited investor pool, the absence of back-up systems for issuers' bankruptcies in South Korea, and difficulty in pricing mortgage assets, most of which carry floating rates. Local home-backed loans have complicated structures, including maturities and repayment plans, which are far from standardised. Only 5 percent of mortgage loan borrowers are in fixed-rates. A possible interest rate hike amid inflationary worries may trigger a payment shock, Moody's Investor Services said in a note last week. With an immature market and investors still cautious after the global credit crisis, South Korean RMBS need to be sold through private placements, making the pricing more expensive than before, said an official at a top domestic bank, who asked not to be indentified. For Kookmin, its $1 billion covered bond sale entailed about $78 million in costs for currency and interest cost hedging. But South Korea's mortgage loan delinquency ratio was just 0.43 percent in June, versus 9.4 percent for the U.S. in May, which was a 25-year high. Their loan-to-value ratio has been cut to 50 percent of the market price of a home worth 600 million won or more, from 60 percent since July. U.S. subprime mortgages had a 94 percent of loan-to-value ratios as of late last year, according to the FSS. (Additional reporting by Umesh Desai in HONG KONG; Editing by Marie-France Han and Lincoln Feast) Email Story IM Story Printable View Blog This Sign in to recommend this article » 0 users recommend Related Articles: Business Consumer spending rises in June, incomes fallReuters - 2 hours 52 minutes ago US STOCKS SNAPSHOT-Wall St trims losses after home sales dataReuters - 1 hour 56 minutes ago Wipro wins 5-year deal from U.S. apparel retailerReuters - Wednesday, August 5 Consumer spending rises in June, incomes dropAP - 1 hour 38 minutes ago Agency brokers jump into bond trading, few to lastReuters - Wednesday, August 5 Most Popular – Business Viewed End of US economic crisis 'getting very close' Tamiflu-resistant swine flu found on US-Mexico border BoA to pay 33 mln dlrs to settle Merrill accusations Concerns grows over drug-resistant flu UBS posts four-fold increase in quarterly loss View Complete List » Search: Home Singapore Asia Pacific World Business Entertainment Sports Technology Top Stories Most Popular Copyright © 2009 Yahoo! 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