Presentation on theme: "Korea Asset Management Corporation"— Presentation transcript:
1 Korea Asset Management Corporation Korean Experience ofSecuritization and NPL DispositionKorea Asset Management Corporation
2 Table of Contents I. Korean Securitization and KAMCO II. KAMCO’s NPL SecuritizationIII. Future of NPL Securitization
3 I. Korean Securitization 1. New Securitized Assets by Each Year2. Loans and Bonds as Major Source of Securitization3. Who securitized in Korea?4. Lessons from Korean Experience
4 1. New Securitized Assets by each year Sep Dec 00Enacted First Corporate ReceivableDec Aug Jan 01First Private First P-CBO First Venture P-CBOFirst Offshore Receivable in $ First C-CardFirst Korean Cross-Border KAMCO NPL $Mar 01Jan Mar First Credit CardFirst Public Issue First KoMoCo MBS Dec 01Feb First Revolving Credit CardJun First S-CBOFirst Auto Dec 02First KAMCO First $ MBS
5 2. Loans and Bonds as Major Sources of Securitization (In 100 MIL KRW)7,1936,1358,81111,9105,550Real Estate161,582(85.4%)372,777(93.6%)413,992(81.3%)159,538(39.6%)56,842(83.9%)Loans Total12,74457,8043,100-69,19618,73836,96845,9979,515221,65657,5221,119146,9229,8588,3805,913206,04036,279600103,11824,78413,7882,26039,8019,7242,06330,0129,3305,6272,4609,413LoansLease, AutoMBSLand ReceivableCredit CardCorporate ReceivableOthers398,27419,362(4.9%)11,6707,6922002189,301509,342493,83267,709Total (100%)20,526(10.8%)86,539(17%)286,384(1.9%)5,317(7.9%)Security Total9,15011,37611,13375,406204,15473,0739,1575,317S-CBOP-CBOOther Securities200120001999Underlying
9 Lessons from Korean Experiences Lesson 1 : Securitization evolves as market need arisesUSA : Mortgage Lease/Cards Junk Bonds/CBOs Future Cash FlowsKorea : NPLs CBOs Cards Future Cash FlowsLesson 2 : Securitization can be an effective policy tool forovercoming credit crunch problems (or credit qualitygap)Lesson 3 : Public sectors can facilitate securitizationBeware: Basel II will make NPL ABS much difficult
10 II. KAMCO’s NPL Securitization 1. Definition of NPL2. Troubled Loan by banks3. Why KAMCO was involved in NPL Disposition4. KAMCO’s NPL Securitization5. Why Securitization for NPL?6. JV-SPC with private investor
11 1. Definition of NPL Loan Categories; Normal (正常, 정상 ) Special Mention (關注, 요주의)Substandard (次級, 고정) NPLsDoubtful (可疑, 회수의문) NPLsEstimated Loss (損失, 추정손실) NPLsCriterion ChangeA loan was Substandard if 6 months delinquent;from June months delinquentKorea adopted the Forward Looking Criteria since 2000analyzing borrower’s repaying abilityeffected increase of NPL
13 3. Why KAMCO was involved in NPL Disposition Credit CrunchNPLs hinder banks’ lending activityIf nothing is done, NPLs get worse each day, Recovery decreases continuouslyKorean government restructured banks, and banks restructured corporate clients-> Korean government purchased NPLs from banks throughKAMCOKAMCO, as a Korean national “Bad Bank” pioneered NPL resolution-> The experience will be re-deployed for current Credit CardProblems
14 4-1. Korean NPL Disposition (In billion US$)28.55%9.08%2.81%30.08%58.15%100%(A) / (C)151,347.642,008.536,931.725,79838,264.18,345.3Total (C)108,130.338,192.235,89118,036.916,010.2-Banks (B)43,217.33,816.31,040.77,761.122,253.9KAMCO (A)Total20012000199919981997
15 4-2. KAMCO Pioneered NPL Securitization KAMCO pioneered and banks followedKAMCO tried to sell NPL from late 1998 but no domestic demand existedOnly demand was from American Distressed Debt Investors1999~2000:KAMCO created market for bulk sale targetting foreign investorsKAMCO established JV NPL investment vehicle with private investorsKAMCO issued public and private ABSs2000~2001: Banks followed KAMCO’s sale method: Domestic investors started to follow foreign investorsNPL securitization market can not develop on its own - needed government level support at early stage
16 4-3.KAMCO NPL Resolution Methods KAMCO Has Acquired USD 91.77bn in NPLs and Has Resolved USD 53.86bn Since November 1997.(USD 1 = KRW 1,200)(As of December 31, 2002, in billion U.S. Dollars)Resolution MethodsAccumulated ResolutionRatioFace ValuePurchase ValueRecovery ValueInternational Bidding5.071.091.349.41%ABS Issuance6.683.523.4812.41%Sale to AMC2.150.550.773.99%Sale to CRC1.540.300.562.86%Individual Loan Sales2.160.530.764.01%Court Auction, Public Sales6.922.192.6912.85%Collection10.543.564.9419.58%Daewoo Held2.731.862.225.07%Sub Total37.8013.6016.7570.18%Recourse & Cancellation16.068.478.4729.82%Total53.8622.0725.23100.00%* Non-Cash Resolution (Debt-equity swap) : USD 8.65 billion
17 5. Why Securitization for NPL? Seller’s Side1. Off Balance Sheet Effect and BIS Capital Release2. Diversified Loan Pool is easier to sell than Individual Loan3. Credit Guarantors prefer to guarantee partially for asecuritized pool than Individual Loan4. Easier Legal Structure for foreign investorsInvestor’s SidePossible leverage if senior tranche is sale-able
18 Asset Management Contract 6. Joint Venture SPC with Private investorSellerInvestorNPLs 100%50%cash50%Cash+50%ABS50%ABSSPCSeller 50% : Investor 50%Asset Management ContractAsset ManagerSeller and Investor form a JV to warehouse NPL for future resolution through disposal, restructuring and securitization
19 III. Future of NPL Securitization 1. Sophisticated Structure: Two Tier2. Securitization and Credit Guarantees are priorityfor Asian Countries3. Joint pooling of Multiple Countries4. Proposed Structure5. How to harmonize between countries
20 1. Sophisticated Structure: Two Tier First Level Entity :Local Entity in capital importing countryCompany or Trust as applicableMust achieve ‘local rating’ acceptable to international ratingagencySecond Level Entity:Domiciled in Offshore Financial Center (Cayman Island etc) forinternational issuance
21 Other Asian Countries need Securitization Market 2. Securitization and Credit Guarantees are priority for Asian CountriesOther Asian Countries need Securitization MarketBut they lack credit, local bond market and FX swapIn addition to Subordination (internal credit support), sufficient external credit support is requiredIn Korea, Third Party Banks (with less NPL problem) partially guaranteed NPL securitizationAlso, Korea Credit Guarantee Fund provided partial guarantee to P-CBOsGovernment supported credit guarantee program is pre-requisite for pooling NPL
22 3. Joint pooling of Multiple Countries For NPL, the borrowers are in financial trouble, but they may bestrategic corporations in the “Core Industries”of the countryGovernment supports in those industries are inevitablePooling and supporting Asia-Pacific industries together might be better thanindividual country level supportMay be easier to invite private investment bankers and vulture investors’participationKAMCO proposed joint pooling of Asian NPL and SME Loans toAPEC/ASEAN+3 countries.
23 4-1. Proposed structure Goal: Means: Facilitate disposal of NPLs and SME industrial financing in the region by mobilizing savings from capital-abundant countriesMeans:Adopt securitization with proper risk sharingCountries participate voluntarily
24 Credit guarantee/Swap 4-2. Proposed structureCountry ANPLLoans/BondsSPC in Country D(CapitalAbundantCountry)SeniorJuniorCountry BLoan/Country CGov’t Agencyin Country DCredit guarantee/Swap
25 5. How to harmonize between countries Different Financial and legal cultures exist between participating countriesKorea & Japan : ABS law well-established and ABS market volumeachievedChina : Only Trust Law is availableThailand, Malaysia, India, Philippines : ABS law and market volumedevelopingAccounting, tax and bankruptcy systems are also differentEvery country has unique client relationship and service(loan collection)cultureNPL provisioning and recovery level is also differentHarmonization at FIRST TIER level is necessary, but difficult to achieveSECOND TIER is required as ‘SAFE ZONE’.
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