Just a few weeks after the first Japanese residential mortgage-backed securitization, hopes that MBS transactions will quickly propel Japan into becoming the world's second biggest structured finance market are looking forlorn, as originators now have cheaper financing options and little reason to trim balance sheets.
"Most city banks [the country's strongest, city-based institutions] are doing their own feasibility studies for issuing MBS, but as far as I know there is no specific transaction which is coming soon," remarked an ABS banker in Tokyo.
Japanese home mortgages have long been considered ideal for securitization, because consumer defaults are extremely low compared to other advanced markets and most domestic banks are still contemplating issuing MBS in the long term, said an official at a city bank in Tokyo.
But after the government injected 7.45 trillion ($60 billion) of public funds into the banking system in March, banks no longer have pressing funding needs. The amount of corporate loans held by banks has also declined sharply in recent months, making further shedding of assets unnecessary, he added.
Yet some arrangers are doubtful that MBS offers enough benefit for Japanese originators, even over the long run. "[MBS] is very expensive finance for city banks, and they don't need asset-liability management. Life insurance companies originate some mortgages, but they don't need to do this. Other than very desperate second-tier or low-end banks, there is really no economic incentive," argued one Japan ABS head.
The domestic mortgage market will take off once the Government Housing Loan Corp. Japan's biggest mortgage lender securitizes its holdings, but that is at least a year away, he added.
Even before Sanwa Bank issued the country's first MBS in May, many Japanese banks expressed interest in securitizing their home mortgages. For example, Sumitomo Bank announced this spring that it would securitize home loans worth more than 100 billion before September. But those plans are now on the back burner as the bank continues to study the issue, said sources. "I am not sure what was Sanwa's incentive for issuing MBS. But other city banks have decided [MBS] is not the most attractive funding source for them," concluded a banker at a Japanese firm. VC