SMC mulls MBS for retail investors

The MBS is a long-term financial source instrument to help SMC, a specialised financial institution, buy housing-loan portfolios from commercial banks.
Unchalee Simasathien, acting president of SMC, said the corporation could not deposit money itself, while the key role of her agency is to help develop the secondary mortgage market. Hence issuance of long-term financial instruments like the MBS and short-term instruments such as bills of exchange have to be made every year.
Every tranche of SMC’s MBS has been oversubscribed by institutional investors even though the rate of return is not as high as from corporate bonds, she said. But it cannot make a public offering to mass investors right now because they need to understand first that the MBS is not a high-return debt instrument, as the interest SMC charges its housing-loan customers who are part of the mortgage portfolios it purchases from commercial banks is not high.
The secondary mortgage market will be well developed when retail investors are more familiar with MBS, she said.
The corporation will use the third “Asean Fixed Income Summit”, which it is hosting on September 19, to promote the importance of the secondary mortgage market and MBS to investors and the public, she added.
The three-year MBS that it issued in 2013 to institutional investors has a yield of 4.28 per cent compared with 3.28 per cent from government bonds.
An MBS is classified as a state-enterprise bond, which currently account for 8 per cent of total bond issues each year.
Government bonds make up the largest proportion of the bond market at 38 per cent, followed by Bank of Thailand bonds at 29 per cent and corporate bonds at 25 per cent.
Unchalee said SMC was in talks with many commercial banks over the possibility of rolling out long-term fixed rates for mortgages. The rates could be adjusted every five years.
Fixed long-term rates would make the housing-loan market more stable and help SMC quote a reasonable yield from its MBS to retail investors, she said. However, the banks might not be too keen on the idea as they want to retain the ability to offer refinancing.
Some customer segments want long-term fixed rates, and SMC |hopes the market will be gradually educated to accept them. Once that happens, the corporation expects to be able to offer MBS to retail investors after 2017.
Bank of Ayudhya (Krungsri) recently rolled out a long-term fixed rate of 4 per cent for the first five years and 5 per cent for seven years, which Krungsri will become the latest bank partners that SMC will buy housing loan portfolio.
SMC plans to issue MBS with terms of five to seven years at the end of this year, but under the regulation, [whose, BOT?] she cannot disclose the amount [value?] of MBS.
The housing-loan portfolios backing the MBS issues will be those that SMC purchased from banks at least two years ago, because it takes about that long to ensure that the loans are of sufficient quality, she said.
SMC this year has budgeted Bt9 billion to Bt10 billion to purchase housing-loan portfolios from commercial banks. Most of the purchases will be in the second half. In the first six months, SMC purchased Bt600 million worth from commercial banks, bringing outstanding loans to Bt27 billion.