The South Korean market seems to be catching on to the securitization game as the market has seen a substantial boost in deals over the last year-and-a-half. According to a report issued by Standard & Poor's, the need for cheap funding is instigating the ever-growing securitization market.

According to the report, a proficient non-bank consumer finance industry has developed as a result of the government's initiative to ignite the usage of credit cards. "South Korea began encouraging increased credit card use in 1999 to improve tax collections and bolster domestic growth and consumption, which would lessen the country's dependence on exports," the report said.

Since the non-bank finance companies do not take deposits they tend to look for cheap funding, and therefore securitization has become a growing trend. And, while S&P has already rated six South Korean consumer asset securitizations since 2001, which include three auto loan deals and three consumer credit card transactions, there are already at least six new credit card deals lined up for the second half of this year, the report said. Korea Exchange Bank Credit Service, Woorie Card, and Kookmin Bank are among those expected to hit the market before year-end.

"There are some new first-time issuers, which is particularly important in terms of market development and setting the stage for eventual portfolio benchmarking among the different originators," the report said. "The challenges in rating the transactions still remain the fast growth of the portfolios and the changes in product, origination, and limited historical data."

The South Korean securitization market is still on the rise and lacks a rich history. And as a result, there are a few market concerns, which include increasing delinquencies, and regulators have taken steps to curb the problem. Other issues that may in fact hinder the market include interest-rate increases, the growth or promotion of revolving cards which could create deferred problem loans; a rising cost of funds; and increasing marketing costs, and the compression in interest income leaving less room for lax origination standards, the report said.

Despite these concerns however, the rating agency said asset quality and profitability are going to be the main forces on the road to success for the consumer card companies.

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