The Monetary Authority of Singapore recently issued what it called the final form of its guidelines governing securitization by banks.

The guidelines (MAS Notice 628) set out the capital treatment of securitized assets, as well as the disclosure, separation and other requirements applicable to banks assuming various roles in a securitization transaction. MAS said that the guidelines seek to ensure that banks involved in the securitization transactions fully understand their roles, responsibilities and risks, and that they hold appropriate capital against the risks they accept.

The release of the guidelines was marked by a speech given by Lee Hsien Loong, the nation state's deputy prime minister. "We are in favor of securitization to diversify risk and not to window dress balance sheets," he told an audience at a dinner marking the 25th anniversary of the Singapore Investment Banking Association. "Capital relief will be granted where the transfer of risks and rewards associated with the securitized asset has been effective and complete."

The guidelines make clear that banks will still have to apply to the Authority for permission to issue securitizations.

Structured finance pros in Singapore and elsewhere in Asia generally welcomed the guidelines and had nothing but praise for the attitude and competence of the MAS. "We are very encouraged by what is happening in Singapore," said Diane Lam, of Standard & Poor's structured finance team in Hong Kong. "The MAS has adopted a flexible approach and recognized in their policy review that asset securitization is a developing business and so we can and should expect further changes and refinements."

She added that the guidelines cover the typical concerns that regulators consider when dealing with securitization: capital provisioning; moral hazards and moral recourse risk; residual risk and cherry picking; and investment risks for banks.

However, some pros wondered how great the incentives are for Singapore banks to turn to securitization. "Volumes and volumes of proposals have gone from my desk and my colleagues desks and we're not getting much closer," said one banker. "There's no economic reason for banks in Singapore to securitize as the banks here are highly capitalized and the domestic markets are overflowing with liquidity."

"They will only turn to securitization when shareholders begin to value banks on return on equity, something that we are only beginning to see," he added.

Nonetheless, it is the likelihood that banks will join their north American and European counterparts by focusing on their return on equity/assets, that is keeping Singapore-based pros hopeful. The first definite sign that this is beginning to happen came in June when the Development Bank of Singapore set up its own asset-backed commercial paper deal backed by low-yielding loans and bonds linked to semi-government entities (ASRI 6/19/2000 p.10)

The bank was clear that the S$200 million (US$115 million) deal, which was rated A1 by S&P, was an effort to improve return on equity by getting rid of lower yielding assets and investing the proceeds in more lucrative areas.

However, that deal highlighted another factor that may end up disappointing the international investment banks: DBS had no need of their services, as it was able to structure the deal to the standards required by local investors itself and then place its paper without any help.

"There is no shortage of cash around in Singapore, so if a bank wants to tap local investors, they don't need the likes of us," an investment banker in Hong Kong said. "If they want a cross-border deal arranged to international standards they will have to hire international banks, but it's not clear that that would make any sense. If they choose to securitize, they are likely to stay in Singapore."

Other pros pointed out that international bankers have recently concentrated more on corporate securitization, rather than the banking sector, and that there has been a reasonable volume of private deals which see trade receivables placed into conduits. "That is what we've been doing and that's what we expect to be doing in the future," said one banker in Singapore.

The guidelines are available on the MAS website at

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