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Korea Asset Management Corporation Korean Experience of Securitization and NPL Disposition Korean Experience of Securitization and NPL Disposition.

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Presentation on theme: "Korea Asset Management Corporation Korean Experience of Securitization and NPL Disposition Korean Experience of Securitization and NPL Disposition."— Presentation transcript:

1 Korea Asset Management Corporation Korean Experience of Securitization and NPL Disposition Korean Experience of Securitization and NPL Disposition

2 Korea Asset Management Corporation 2 Table of Contents I. Korean Securitization and KAMCO II. KAMCOs NPL Securitization III. Future of NPL Securitization

3 Korea Asset Management Corporation 3 I. Korean Securitization 1. New Securitized Assets by Each Year 2. Loans and Bonds as Major Source of Securitization 3. Who securitized in Korea? 3. Who securitized in Korea? 4. Lessons from Korean Experience 4. Lessons from Korean Experience 1. New Securitized Assets by Each Year 2. Loans and Bonds as Major Source of Securitization 3. Who securitized in Korea? 3. Who securitized in Korea? 4. Lessons from Korean Experience 4. Lessons from Korean Experience

4 Korea Asset Management Corporation 4 1. New Securitized Assets by each year Sep 98Dec 00 EnactedFirst Corporate Receivable Dec 98 Aug 00 Jan 01 Dec 98 Aug 00 Jan 01 First Private First P-CBO First Venture P-CBO First Private First P-CBO First Venture P-CBO First Offshore Receivable in $ First C-Card First Offshore Receivable in $ First C-Card First Korean Cross-Border KAMCO NPL $ First Korean Cross-Border KAMCO NPL $ Mar 01 Mar 01 Jan 99 Mar 00 First Credit Card Jan 99 Mar 00 First Credit Card First Public Issue First KoMoCo MBS Dec 01 First Public Issue First KoMoCo MBS Dec 01 Feb 00 First Revolving Credit Card Jun 99 First S-CBO Jun 99 First S-CBO First Auto Dec 02 First Auto Dec 02 First KAMCO First $ MBS First KAMCO First $ MBS

5 Korea Asset Management Corporation 5 2. Loans and Bonds as Major Sources of Securitization 7,1936,1358,81111,9105,550 Real Estate 161,582(85.4%)372,777(93.6%)413,992(81.3%)159,538(39.6%)56,842(83.9%) Loans Total 12,74457,8043,100-69,19618,738-36,96845,9979, ,65657,5221,119146,9229,8588,3805,913206,04036, ,11824,78413,7882,26039,8019,7242,06330,0129,330-5,6272,4609,413-Loans Lease, Auto MBS Land Receivable Credit Card Corporate Receivable Others 398,274 19,362(4.9%) 11,6707, ,301509,342493,83267,709 Total (100%) 20,526(10.8%)86,539(17%)286,384(1.9%)5,317(7.9%) Security Total 9,15011,376-11,13375, ,15473,0739,157--5,317S-CBOP-CBO Other Securities Underlying (In 100 MIL KRW)

6 Korea Asset Management Corporation 6 Who securitized ?

7 Korea Asset Management Corporation 7 Who securitized ?

8 Korea Asset Management Corporation 8 Who securitized ?

9 Korea Asset Management Corporation 9 Lessons from Korean Experiences Lesson 1 : Securitization evolves as market need arises USA : Mortgage Lease/Cards Junk Bonds/CBOs Future Cash Flows Korea : NPLs CBOs Cards Future Cash Flows Lesson 2 : Securitization can be an effective policy tool for overcoming credit crunch problems (or credit quality gap) Lesson 3 : Public sectors can facilitate securitization Beware: Basel II will make NPL ABS much difficult

10 Korea Asset Management Corporation 10 II. KAMCOs NPL Securitization 1. Definition of NPL 2. Troubled Loan by banks 3. Why KAMCO was involved in NPL Disposition 4. KAMCOs NPL Securitization 5. Why Securitization for NPL? 6. JV-SPC with private investor 1. Definition of NPL 2. Troubled Loan by banks 3. Why KAMCO was involved in NPL Disposition 4. KAMCOs NPL Securitization 5. Why Securitization for NPL? 6. JV-SPC with private investor

11 Korea Asset Management Corporation Definition of NPL Loan Categories; Normal (, ) Special Mention (, ) Substandard (, ) NPLs Doubtful (, ) NPLs Estimated Loss (, ) NPLs Loan Categories; Normal (, ) Special Mention (, ) Substandard (, ) NPLs Doubtful (, ) NPLs Estimated Loss (, ) NPLs Criterion Change A loan was Substandard if 6 months delinquent; from June months delinquent Korea adopted the Forward Looking Criteria since 2000 analyzing borrowers repaying ability effected increase of NPL

12 Korea Asset Management Corporation Troubled Loan by Banks 32.5 trillion (1997) Increase : (trillion won) Criterion Change 44.5 New 93.1 Decrease : (trillion won) by KAMCO 43.2 by Banks trillion (2001)

13 Korea Asset Management Corporation Why KAMCO was involved in NPL Disposition NPLs hinder banks lending activity If nothing is done, NPLs get worse each day, Recovery decreases continuously Korean government restructured banks, and banks restructured corporate clients -> Korean government purchased NPLs from banks through -> Korean government purchased NPLs from banks through KAMCO KAMCO KAMCO, as a Korean national Bad Bank pioneered NPL resolution -> The experience will be re-deployed for current Credit Card -> The experience will be re-deployed for current Credit Card Problems Problems Credit Crunch

14 Korea Asset Management Corporation Korean NPL Disposition 28.55%9.08%2.81%30.08%58.15%100%(A) / (C) 151, , , ,79838,264.18,345.3Total (C) 108, , ,89118, ,010.2-Banks (B) 43,217.33,816.31,040.77, ,253.98,345.3KAMCO (A) Total (In billion US$)

15 Korea Asset Management Corporation KAMCO Pioneered NPL Securitization KAMCO pioneered and banks followed KAMCO tried to sell NPL from late 1998 but no domestic demand existed Only demand was from American Distressed Debt Investors 1999~2000:KAMCO created market for bulk sale targetting foreign investors KAMCO established JV NPL investment vehicle with private investors KAMCO issued public and private ABSs 2000~2001: Banks followed KAMCOs sale method 2002 : Domestic investors started to follow foreign investors NPL securitization market can not develop on its own - needed government level support at early stage

16 Korea Asset Management Corporation KAMCO NPL Resolution Methods KAMCO Has Acquired USD 91.77bn in NPLs and Has Resolved USD 53.86bn Since November (As of December 31, 2002, in billion U.S. Dollars) (USD 1 = KRW 1,200) Resolution Methods Accumulated Resolution Ratio Face ValuePurchase ValueRecovery Value International Bidding9.41% Total % ABS Issuance12.41% Sale to AMC 3.99% Sale to CRC 2.86% Individual Loan Sales 4.01% Court Auction, Public Sales 12.85% Collection19.58% Daewoo Held 5.07% Sub Total 70.18% Recourse & Cancellation 29.82% * Non-Cash Resolution (Debt-equity swap) : USD 8.65 billion

17 Korea Asset Management Corporation Why Securitization for NPL? Sellers Side 1. Off Balance Sheet Effect and BIS Capital Release 2. Diversified Loan Pool is easier to sell than Individual Loan 3. Credit Guarantors prefer to guarantee partially for a securitized pool than Individual Loan 4. Easier Legal Structure for foreign investors Investors Side Possible leverage if senior tranche is sale-able

18 Korea Asset Management Corporation Joint Venture SPC with Private investor Seller Investor SPC Seller 50% : Investor 50% Asset Manager NPLs 100% 50%Cash+ 50%ABS 50% cash Asset Management Contract 50% ABS Seller and Investor form a JV to warehouse NPL for future resolution through disposal, restructuring and securitization

19 Korea Asset Management Corporation 19 III. Future of NPL Securitization 1. Sophisticated Structure: Two Tier Securitization and Credit Guarantees are priority 2. Securitization and Credit Guarantees are priority for Asian Countries for Asian Countries Joint pooling of Multiple Countries 3. Joint pooling of Multiple Countries 4. Proposed Structure 5. How to harmonize between countries 5. How to harmonize between countries 1. Sophisticated Structure: Two Tier Securitization and Credit Guarantees are priority 2. Securitization and Credit Guarantees are priority for Asian Countries for Asian Countries Joint pooling of Multiple Countries 3. Joint pooling of Multiple Countries 4. Proposed Structure 5. How to harmonize between countries 5. How to harmonize between countries

20 Korea Asset Management Corporation Sophisticated Structure: Two Tier First Level Entity : Local Entity in capital importing country Company or Trust as applicable Must achieve local rating acceptable to international rating agency Second Level Entity: Domiciled in Offshore Financial Center (Cayman Island etc) for international issuance

21 Korea Asset Management Corporation Securitization and Credit Guarantees are priority for Asian Countries Other Asian Countries need Securitization Market But they lack credit, local bond market and FX swap Other Asian Countries need Securitization Market But they lack credit, local bond market and FX swap Government supported credit guarantee program is pre-requisite for pooling NPL In addition to Subordination (internal credit support), sufficient external credit support is required In Korea, Third Party Banks (with less NPL problem) partially guaranteed NPL securitization Also, Korea Credit Guarantee Fund provided partial guarantee to P-CBOs

22 Korea Asset Management Corporation Joint pooling of Multiple Countries. For NPL, the borrowers are in financial trouble, but they may be strategic corporations in the Core Industriesof the country Government supports in those industries are inevitable Pooling and supporting Asia-Pacific industries together might be better than individual country level support May be easier to invite private investment bankers and vulture investors participation KAMCO proposed joint pooling of Asian NPL and SME Loans to APEC/ASEAN+3 countries

23 Korea Asset Management Corporation Proposed structure Goal: Facilitate disposal of NPLs and SME industrial financing in the region by mobilizing savings from capital-abundant countries Means: Adopt securitization with proper risk sharing Countries participate voluntarily

24 Korea Asset Management Corporation Proposed structure Country A NPL Loans/ Bonds SPC in Country D (Capital Abundant Country) Senior Junior Senior Junior Senior Junior Country B NPL Loan/ Bonds Country C NPL Loan/ Bonds Senior Junior Govt Agency in Country D Credit guarantee/Swap

25 Korea Asset Management Corporation How to harmonize between countries Harmonization at FIRST TIER level is necessary, but difficult to achieve SECOND TIER is required as SAFE ZONE. Different Financial and legal cultures exist between participating countries Korea & Japan : ABS law well-established and ABS market volume achieved China : Only Trust Law is available Thailand, Malaysia, India, Philippines : ABS law and market volume developing Accounting, tax and bankruptcy systems are also different Every country has unique client relationship and service(loan collection) culture NPL provisioning and recovery level is also different


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