AFDC Workshop on Developing Asian Bond Markets:
Facilitating the pricing mechanism for Asian bonds
May 29- June2, Shanghai
Bond Market Development:The Case of South Korea
Gyutaeg Oh
Korea Fixed Income Research Institute
Chung Ang University
Overview
1
Development of Korean Bond Market: History
2
Development of Korean Government Bond Market
3
Development of Korean Corporate Bond Market
4
Special Topics: New Asset Backed Securities
1
Development of Korean Bond Market: History
Development of Korean Bond Market: History
USD Billion
800
IMF Crisis
700
600
500
400
300
200
100
0
1980
1990
Money Market
Source: Bank of Korea
1995
2000
2003.10
Bond Market
2005
Stock Market
Development of Korean Bond Market: History
Amounts Outstanding
USD Billion
250
200
150
100
50
0
1990
Gov.
Source: Bank of Korea
1995
Bank
2000
Y
ear
MSB
2003
Agency
2005
Corp.
Development of Korean Bond Market: History
Source: Asia Bond Monitor 2005
2
Development of Korean Government Bond Market
Before & After the Crisis
Before the currency crisis: small and under-developed


Markets for government bonds and government-guaranteed bonds
were not well-developed (conservative fiscal policy)
As a result, the 3-yr corporate bond emerged as the benchmark
bond
After the currency crisis: Dazzling Development
– Government bond Market: To finance public fund for financial
restructuring and boost depressed economy by fiscal pump
priming (Government-led Development)
– The government dramatically increased the size of KTB issuance
from around W7 trillion ($billion) in 1997 to W56 trillion ($billion) in
2004.
– In terms of outstanding balance, the total amount of KTBs has
increased from W25 trillions as of the end of 1996 to more than
W123 trillion as of end 2004.
Government Bond Market -Institution Building
Reforms in Korea
1998.8
Announcement of ‘Government Bond Market Stimulus Plan’
1999.3
Establishment of Inter-Dealer market (IDM)
1999.3~1999.6
Test period of Primary Dealer system
1999.7
Enactment of Primary Dealer system
1999.9
Introduction of government bond futures
1999.11
Introduction of DVP system
2000.2
Introduction of Inter-Dealer Brokers (IDB)
2000.3
Securities financing facilities for primary dealers
2000.5
Introduction of reopening system
2000.8
Switch from multiple price auction to Dutch auction
2002.10
Mandatory Exchange trading requirement for benchmark issues
2003.1
Strengthening obligations of primary dealers
Unifying interest payment dates in preparation for introducing
STRIPS
2005
Introduce STRIPS
2006
Issue 20 year bonds
Issue Inflation-Indexed Bonds
Design products for retail investors
Effect of Reopening System
The Fungible Issue System (Reopening System)
•
•
Bonds have identical
maturities and coupon rates.
Reopening System expands
the size of bond issuances
of the same maturities.
The turnover
rates of GB is 6
times larger than
that of CB.
Turnover Rates
1.4
1.2
N on-fungible
2000.10월
2001
2002
2003
국채회전률
회사채회전률
2003-03
2003-01
2002-11
2002-09
0
2002-07
1
2002-05
0
2002-03
2
2002-01
0.2
2001-11
3
Corporate
bonds
2001-09
0.4
2001-07
greater
2001-05
4
2001-03
0.6
2001-01
3.5 times
2000-11
5
2000-09
0.8
2000-07
6
Treasury bonds
2000-05
1
2000-03
7
2000-01
vo lum e (trillio n w o n)
Volum e of B enchm ark Issues
Volume of
Benchmark Issues
History of PD System
• 1999.3
• 1999.7
Establishment of Inter-Dealer market (IDM)
Introduction of Primary Dealer system
- 24 institutions designated as primary dealers
- 2% Minimum requirement: Acquisition & Trading
• 2000.2
• 2000.3
Introduction of Inter-dealer brokers (IDB)
Providing financing facilities for primary dealers
- Line of credit provided (at cheaper rate)
Privileges
Obligations
- Exclusive participation in
government bond auctions
- 5% minimum underwriting & trading
(every 6 months)
- Access to securities financing
facilities for secondary market trading
- Provide bid/ask quotes (min vol and
max spread constraint)
- Regular consulting partners for the
treasury department at the Ministry of
Finance and Economy
- 40% Mandatory exchange trading
- Reporting requirement of position and
trading information of the government
bonds (To Treasury)
Mandatory Exchange Trading Requirement
• Korea Stock Exchange (KSE) & OTC Market
VS.
• New Policy measures for activating KSE market
2002.10
Mandatory exchange (KSE) trading requirement
- 20% of Benchmark Issues
2003.01
Obligations of primary dealers strengthened
- Exchange trading requirement increased from 20% to 40%
- Minimum trading amount increased from 2% to 5%
Primary dealers should trade benchmark issues
of the Government Bonds in KSE.
Mandatory Exchange Trading Requirement
Exchange Trading Proportions (%)
(Benchmark vs. Non-Benchmark)
60.0
50.0
40.0
30.0
20.0
10.0
Benchmark
May-04
Mar-04
Jan-04
Nov-03
Sep-03
Jul-03
May-03
Mar-03
Jan-03
Nov-02
Sep-02
Jul-02
May-02
Mar-02
Jan-02
0.0
Non-benchmark
The proportion of benchmark issue trading within the
exchange has significantly increased since Oct. 2002.
Mandatory Exchange Trading Requirement
Gov Bond Trading Volume (KSE vs. OTC)
600,000
Total(D+E)
Exchange
OTC market
500,000
400,000
300,000
200,000
100,000
Mandatory Exchange
Trading Requirement
For benchmark issues
Strengthening
obligations of
primary dealers
-
Jan-02
Apr-02
Jul-02
Oct-02
Jan-03
The Trading volume in the OTC market has not been decreased.
Mandatory Exchange Trading Requirement
Bid-Ask Spreads of Benchmark Issues
25
20
6.7bp
15
18.1bp
10
5
0
Jan-02
Apr-02
Jul-02
Oct-02
Jan-03
Bid-ask spreads of the benchmark issues
decreased sharply after the new policy in 2002.
Liquid Gov. Bond Futures Market
3-Year KTB Futures – Global Status
<Top 10 Gov Bond Futures Contracts>
(in 1,000 contract)
Rank
Contract(Maturity)
Volume
Exchange
1
Euro Bund(10)
129,320
Eurex
2
Euro Bobl(5)
78,297
Eurex
3
T-Note(10)
66,531
CBOT
4
Euro Schatz(2)
59,605
Eurex
5
T-Note(5)
33,204
CBOT
6
T-Bond(30)
30,452
CBOT
7
T-Bonds(3)
9,190
SFE
8
KTB(3)
5,452
KOFEX
9
Long Gilt(10)
4,883
Euronext-Liffe
10
JGB(10)
4,501
TSE
(Source: FIA, January~June 2003)
Recent Trends in Government Bond Market Institution Building Reforms in Korea
Before 2005, reform focused on measures to reduce
issuing cost by improving liquidity of the benchmark
issues
After 2005, reform focuses on measures to reduce
issuing cost by meeting diverse investors’ need
2006
2005
• Introduce STRIPS
• Issue 20 year Bonds
• Issue Inflation-Indexed Bonds
• Design products for retail
investors
3
Development of Korean Corporate Bond Market
Development of Corporate Bond Market
Maturity Concentration
Crisis
(2000)
Financial Crisis
(97.11)
Daewoo Crisis
(99.8)
Credit shock
Credit shock
Credit shock
Credit shock
Market Impact
Market Impact
Market Impact
Market Impact
ABS (Asset
Backed
Securities)
development
to handle
NPLs
Massive Corp.
Bond Issuance
to Refi Bank
Debts (From
Banks to ITCs)
MTM accounting
for ITCs
 Establish Bond
Pricing Agency
 Improve Post-
Trade
Transparency
Improve Credit
Rating
Issuance of P-
SKG & Credit Card
Crisis (03.3)
Credit card
CBOs to Refi
Corp Bond Debt
debt roll-over
problems
 Rapid Pick-Up of
 Realizing the
ABS Markets
need for
systemic risk
monitoring
system
 Realizing the
Importance of
Credit Bureau
 Plunge of ABS
markets
Korea’s ABS system: Introduction
The introduction of ABS Act in 1998
 In September 1998, the Asset Backed
Securitization Act (the “ABS Act”) was
passed.
- The ABS Act provides a means to
engage in securitization transactions
with legal certainty.
- Tax benefits are conferred on
transactions under the ABS Act.
- Processes such as perfection of
security interests against third parties
are streamlined.
 The ABS Act was originally intended to
facilitate the disposal of nonperforming loans.
Securitization Process under the ABS Act
 Establishment of a securitization vehicle
- Onshore ABS SPC- Trust company
- Offshore ABS SPC
 Registration of a securitization plan with
the FSC
 Acquisition of securitization assets by
the securitization vehicle
 Appointment of servicer and transaction
administrator
 Issuance of asset-backed securities
Troubled Loan Disposed
(billion won)
1997
1998
1999
2000
2001
Total
KAMCO (A)
8,345.3
22,253.9
7,761.1
1,040.7
3,816.3
43,217.3
Banks (B)
-
16,010.2
18,036.9
35,891
38,192.2
108,130.3
Total (C)
8,345.3
38,264.1
25,798
36,931.7
42,008.5
151,347.6
(B) / (C)
0%
42%
70%
97%
91%
By Banks
71.4%
(billion won, %)
1998
1997
2000
2001
Total
Collected
5,491.7
5,048.2
8,357.9
9,969.7
28,867.5 (25.8)
Write off
265.2
5,170.7
10,779
11,600
30,514.9 (27.3)
802.1
4,433.7
10,894.1
16,129.9 (14.4)
3,937.9
1,831.1
5,769 (8.6)
693.9
1,504.6
1,077.7
3,276.2 (2.9)
6,322
6,877.9
2,722.9
23,476.1 (21)
96.7
96.7 (0.1)
38,192.2
108,130.3
ABS
Direct Sale
Debt – Equity
Swap
Other
7,553.3
Sales to CRV
Total
16,010.2
18,036.9
35,891
Corporate Bonds in Bank Restructuring

Contribution: “Spare-Tire theory”
* Corporations mitigated credit crunch problems by issuing massive
amount of corp. bonds.
 Capital market as a parallel circuit to bank financing
* Market interest rates were stabilized since corp. credit crunch
problems were mitigated & thereby it contributed to high growth in
1999.
Amount of bond Issuance (Net)
unit: 10 billion won
2000
1500
1000
500
0
1997 1/4
-500
1998 1/4
1999 1/4
2000 1/4
2001 1/4
-1000
-1500
government
bank
financial Inst.
corporation
2002 1/4
Credit Shocks: Daewoo Default and Maturity
Concentration
No Free Lunch!!!!!!!

ITCs assumed credit risk with little discipline.

Unviable firms could extend their lives.

Easy financing reduced Chaebol’s incentive to restructure
their businesses.
 - massive default and recurrent credit crunch
- increased ultimate costs of restructuring!

Maturity Concentration & credit crunch in 2001!
Development of Corporate Bond Market
Maturity Concentration
Crisis
(2000)
Financial Crisis
(97.11)
Daewoo Crisis
(99.8)
Credit shock
Credit shock
Credit shock
Credit shock
Market Impact
Market Impact
Market Impact
Market Impact
Massive Corp.
Bond Issuance
to Refi Bank
Debts (From
Banks to ITCs)
 ABS (Asset
Backed
Securities)
development
to handle
NPLs
MTM accounting
for ITCs
 Establish Bond
Pricing Agency
 Improve Post-
Trade
Transparency
Improve credit
rating
Issuance of P-
SKG & Credit Card
Crisis (03.3)
Credit card
CBOs to Refi
Corp Bond Debt
debt roll-over
problems
 Rapid Pick-Up of
 Realizing the
ABS Markets
need for
systemic risk
monitoring
system
 Realizing the
Importance of
Credit Bureau
 Plunge of ABS
markets
Bond Pricing Agencies for Mark-to-Market System in Korea
- Nov. 1997: decided to
introduce “Mark to
Market”
- Dec. 1999:KSDA
provided Matrix Pricing
BP
- Jun. 2000:3 credit
rating agencies
launched 3 BPAs
under government
approval
KIS PRICING
Paid-in Capital
KRW 3 billion
Korea Bond
Pricing
Paid-In Capital
KRW 4.75 billion
Paid-In Capital
KRW 5 billion
The
KSDA
companies.
monitors
these
-Oct. 2000: BPAs began
pricing on MTM fund
- 2002: MTM applied to
Bank’s Trading book,
Trust account ,
Insurance Co.’s
special Trust account,
securities Co.’s
accounts
- Oct. 2003: KDSA stops
matrix pricing
Improve Post Trade Transparency
of Bond Markets
 KSDA requires dealers to report all bond transactions
(including both corporate and government bonds) to
KOSCOM CHECK Terminal within 30 minutes in 1999
(and 15 minutes since 2004)
 NASD begins full dissemination of transaction and price
data on the entire universe of corporate bonds to retail
investors using TRACE (Trade Reporting and Compliance
Engine). Dealers must report corporate bond transactions
to TRACE within 30 minutes, and that window will be
reduced to 15 minutes in July 2005
Improve the Quality of Credit Rating Agencies
(CRA)
In 2006, Ministry of Finance and Economy of Korea plans to lower the
barriers in entering the Korean credit rating industry in 2006, so that
foreign agencies, such as S&P, Moody’s and Fitch may easily get into the
Korean market.
Korean CRA Market
Foreign CRAs
KOREA
INFORMATION
SERVICE
Paid-in Capital: 23.8 billion won
Paid-in Capital: 33.5 billion won
163 Employees
Paid-in Capital:
24.3 billion won
183 Employees
Seoul Credit Rating
& Information
Paid- in Capital: 13.7 billion won
227 Employees
Development of Corporate Bond Market
Maturity Concentration
Crisis
(2000)
Financial Crisis
(97.11)
Daewoo Crisis
(99.8)
Credit shock
Credit shock
Credit shock
Credit shock
Market Impact
Market Impact
Market Impact
Market Impact
 Massive Corp.
Bond Issuance
to Refi Bank
Debts (From
Banks to ITCs)
 ABS (Asset
Backed
Securities)
development
to handle
NPLs
 MTM
accounting
for ITCs
 Establish Bond
Pricing Agency
 Improve Post-
Trade
Transparency
 Improve Credit
Rating
 Issuance of
P-CBOs to Refi
Corp. Bond Debt
 Rapid Pick-Up
of ABS Markets
SKG & Credit Card
Crisis (03.3)
 Credit card
debt roll-over
problems
 Realizing the
need for
systemic risk
monitoring
system
 Realizing the
Importance of
Credit Bureau
 Plunge of ABS
markets
Maturity Concentration (Rollover) Problem

Create a systemic risk (due to credit crunch problem)

A temporary problem: Chaebols paid off debts (low interest rate, higher earning, less
investment)
1 billion won
25,000
20,000
15,000
10,000
5,000
0
1998/1
1999/1
2000/1
Above A
2001/1
BBB
2002/1
BB-B
2003/1
below CCC
2004/1
2005/1
unrated
2006/1
Credit Crunch: Securitization & Credit Guarantee
Credit Guarantee Services by KCGF
23 SMEs
 Credit guarantees for a pool of
corporate bonds / loans
Corp. bonds
(72billion won)
\
Small Business Corporation
Combining mechanisms of ABS
and credit guarantee
Facilitated corporate financing
in a short period of time
Asset
sales
SPC
Credit Enhancement
By Korea Housing Bank
(10 bil.)
Senior bonds
(2yr 8.5 bil., 3yr 36 bil.)
Investor
Junior bonds
(27.5 bil.)
Repurchased by Small
Business Corporation
Evolution of ABS Market in Korea
Introduction
Stage
(’99~’00)
Financial Restructuring &
35
KRW trillion
1
100%
Securitization of NPLs
30
28.6
80%
Developing Stage
(‘00-’01)
Financing tools for
companies
to overcome flight-to-quality
(maturity concentration)
problems
25
22.2
20.6
20
19.7
60%
56.6%
14.4
15
13.1
10.5
41.2%
10
40%
12.6
8.7
9.9 9.6
6.9
Maturing Stage
(’02~’04)
Deepening of
ABS market
Financing tools for SMEs,
credit card companies
mortgage, student loans,
Future Cash Flow
Securitization & others
5
4.6
3.2%
0.50.20.9 0.6
25.4%
4.6
4
2.5
8.3%
1.2
1 0.9
1.9
5.3
0.9
0.6
20%
3 3.5
13.4%0.8
0
0%
1999
Bonds
Securities
2000
Accountable receivables
2001
2002
2003
2004
Card loans
Lease, Auto loans
Real-estate
Ratio of Credit loans
Lessons from Korean Experiences
 Securitization can be an effective policy tool for overcoming
credit crunch problems (or credit quality gap)
 Public sectors can facilitate securitization
 Securitization evolves as market need arises
 USA : Mortgage  Lease/Cards  Junk Bonds/CBOs  Future Cash Flows
 Korea: NPLs
 CBOs
 Cards
 Future Cash Flows
Development of Corporate Bond Market
Maturity Concentration
Crisis
(2000)
Financial Crisis
(97.11)
Daewoo Crisis
(99.8)
Credit shock
Credit shock
Credit shock
Credit shock
Market Impact
Market Impact
Market Impact
Market Impact
Massive Corp.
Bond Issuance
to Refi Bank
Debts (From
Banks to ITCs)
 ABS (Asset
Backed
Securities)
development
to handle
NPLs
MTM accounting
for ITCs
 Establish Bond
Pricing Agency
 Improve Post-
Trade
Transparency
Improve Credit
Rating
Issuance of P-
CBOs to Refi
Corp Bond Debt
Rapid Pick-Up of
ABS Markets
SKG & Credit Card
Crisis (03.3)
Credit card
debt roll-over
problems
 Realizing the
need for
systemic risk
monitoring
system
 Realizing the
Importance of
Credit Bureau
 Plunge of ABS
markets
Credit Card Industry in Korea
◇ Untapped new market of consumer
finance
2002
104,807
4.6
2005.6
82,765
3.4
Growth of Consumer Finance
100.0%
80.0%
60.0%
40.0%
20.0%
◇ Credit card companies financed its
lending by issuing corporate bonds
and by securitizing credit card
receivables.
04
03
20
02
20
01
20
00
Year
20
20
19
99
0.0%
19
◇ Especially Credit card companies with
less financial market experience which
are subsidiary of business
conglomerate used market share
maximization strategy.
2.6
98

57,881
97

Average lending rate of bank: 6~7%
per annum
Cash advance fee: over 20% per
annum
Financing cost of credit card
companies: 6~7% per annum
2000
19

1.6
96
◇ In the beginning it was lucrative!
33,278
19
Every financial company in Korea
began to enter consumer loan market
1995
95
•
0.6
19
After 1998, business entities stopped
financing new investment
10,384
94
•
1990
19
Before 1998, individuals had a lower
pecking order in the credit market
Cards per
economically
active individual
% out of total credit
•
Cards Issued
(thousands)
Beginning of Crisis in Credit Card Industry in Korea
Market Situation
◇ SK Global event (February 2003)
• Family owner was arrested as a suspect of accounting fraud
• Investors of Money Market Fund which invested in debt
instruments issued by SK Global suffered loss.
◇ Investors getting more sensitive about over-issued credit card companies’ bonds
• Increasing concern about credit card companies’ loss
◇ Past due ratio (excluding rescheduled debt) increased
End of 2001
End of 2002
End of 2003
2.0%
5.9%
13.6%
◇ Investors began to redeem investment trust funds in the fear of loss
◇ Investment trust companies had to sell or stop rolling over credit card bonds
◇ Other institutional investors were deeply concerned about their investment
positions in credit card bonds
Government Measures in 2003
•
Initiatives by the Government in April 2003


Rolling over maturing debt securities issued by credit card companies
Funding a pool to support refinancing credit card companies’ debt securities held by investment
trust companies
 Large shareholders joining in new capital raising
(8 credit card companies with their own plans to raise capital in the amount of U$
80m~U$ 400m)
 Credit card companies reconstructing cost structure and asset management
•
Strengthening guidance on sound management



•
Reintroduction of loan service ratio
In calculating past due ratio, liquidated asset should be included
In calculating adjusted capital ratio, 20% of liquidated asset should be included in the denominator
Starting Credit Counseling & Recovery Service (founded in 2003)




1 out of 10 economically active population is registered as insolvent and the number was increasing
Increasing personal insolvency not only hurts financial institutions profitability but becomes the
reason of social unrest
Financial companies co-founded CCRS to reschedule personal debts and help finding jobs for
troubled people
Number of applications for debt rescheduled: 2003: 62,550 → 2004: 287,352
Credit Card Industry after Crisis
• Credit card companies are recovering from crisis
• Assets are still shrinking
• Past due ratio (including rescheduled debt) has decreased to
11.9%(Sep 2005) from 28.3%(end of 2003)
• Number of credit card companies has reduced
- Three companies were merged into mother banks
- Six credit companies left on business
(billion U$, %)
2001
2002
2003
2004
2005.9
Assets+
ABS
60
84
46
30
26
Liabilities+
Financing
from ABS
52
75
45
28
23
Net income
2.1
0.2
-8.8
-1.1
0
ROA
5.8
0.4
-21.6
-3.9
0
Monitoring Systemic Risks
Create indices to monitor systemic risks in bond markets
• Concentration Index
• Credit Spread Index
• Market Sentiment Index
Create indices to monitor individual credit risks
• Strengthen credit bureau business
• Create individual credit risk index
ABS related business guideline
Market’s self-regulatory guideline for those engaged in ABS business
(from ’05.5)
• Clarify the role and responsibilities of ABS related party
• Embody device for surveillance among ABS related parties
• Strengthen ABS related disclosure
Minimize instability in the ABS market and create an environment
favorable to ABS investment
4
New Asset-Backed Securities: Student
Loan Securitization
Establishment of
Korea Housing Finance Corporation
•
Korea Mortgage Corporation was established as a joint venture with IFC in 1999.
•
Establishment of State-run Secondary Mortgage Market Enterprise
–
–
–
–
•
•
Korea Housing Finance Corporation Act enacted in Dec. 2003
KHFC officially established on Mar. 1, 2004
Korean government & Bank of Korea are sole contributors of the capital.
Losses, in excess of reserves, to be covered by the government (KHFC Act)
Major Lines of Business
–
–
–
–
Purchases mortgages and issues MBS
Purchases mortgages and Issues MBB (Mortgage-Backed Bond)
Mortgage Portfolio Business (Issuance of MBS or MBB required)
Provides credit lines to lenders to support the origination of mortgages
Mortgage Securitization Business
– As of Jan. 31, 2006
 7.6 trillion won of mortgages originated (104,496 mortgages)
Currently mortgages are originated by 22 Approved Lenders
 9 Approved Lenders started to originate mortgages from Mar. 25, 2004
 17 MBS Issuances completed (Total 7.3 trillion won)
 The first MBS issuance completed in June, 2004
 The first SLBS Issuances completed in Oct. 2005 (517 billion won)
 Now preparing the 2nd and 3rd SLBS issuances scheduled to be completed in the
coming Apr. and May
MBS Issuance Structure
FSC
Registration of Securitization
Plan, Transfer/Trust
Sales of
Mortgages
Lenders
(Seller/Servicer)
Trust
KHFC
Issuance of MBS
Trust
(Trustee: KHFC)
Guarantee
Fee
Trustee Fee
Mortgages
Monthly Servicing Fee
Repayme
nt of P&I
Borrowers
Investors
MBS P&I
Repayment
Guarantee on
MBS P&I
payment
Existing Subsidized Student Loan
 Major Problems of the old Student Loan Program
- Government’s excessive burden for subsidization
 Annual subsidization increases as the outstanding balance
of student loans increases
 Difficult to increase the government-sponsored student
loans
- Need to support the cost of living besides the tuition
- Need to lengthen the Repayment Period
 Max. 7 years of Repayment Period needs to be lengthened.
 To mitigate the repayment burden
- Mismatch in the bank’s Asset-Liability Management
 Short-term deposits vs. Long-term loans with fixed interest
rate
- Need to develop stable supply system of student loans
 Heavily depends on the banks’ discretion or business
strategy
New Government-Guaranteed Student Loan

Student Loan Securitization
– KHFC issues Student Loan-Backed Securities(“SLBS”) backed by
Student Loans purchased from 15 designated Banks
 KHFC guarantees SLBS P&I payment
– Student Loans are funded from the Bond Market
– Banks will not hold Student Loans under their balance Sheets
– Banks act as the Servicers once they sell Student Loans to KHFC
 Borrower repay P&I through the Banks (Originator/Servicer)
 Banks get Servicer Fee Income
 Banks are free from Credit Risk
Student Loan Securitization Program

Current Status
– In the 2nd half of 2005, 15 Banks originated student loans and sold
them to KHFC for securitization
 Origination period : Aug. 12 ~ Sep. 28, 2005
 SLBS Issuance : Oct. 25, 2005 (517 billion won)
– Currently 16 banks are originating student loans for securitization
 Origination period : Feb. 2 ~ Mar. 24, 2006
 Targeted volume : 800 billion won (1st half of 2006 only)
 SLBS Issuance : Apr. & May, 2006 (400 billion won respectively)
Student Loan Securitization(SLBS)
 SLBS Issuance Structure
FSC
Registration of
Securitization Plan,
Transfer/Trust
Sales of Student Loans
Banks
Trust
KHFC
(Seller/Servicer)
Issuance of SLBS
Trust
(Trustee: KHFC)
Guarantee Fee
Trustee Fee
Student
Loans
Monthly
Servicing Fee
Repaymen
t of P&I
Guarantee
Borrowers
Student Loan
Credit Guarantee
Fund
Guarantee Fee
SLBS P&I
Repayment
Guarantee on
SLBS P&I
payment
Investors
Student Loan Credit Guarantee Fund
•
Specialized Fund for Credit Guarantee
–
Korean Government established「Student Loan Credit Guarantee Fund」
 On July 18, 2005
 To enhance the credit of student loans
 By providing 90% Partial Loss Coverage
–
Ministry of Education & Human Resources Development directs the Fund
 KHFC appointed as the Manager of the Fund
 Borrowers apply for the guarantee through 16 designated Banks which
originate the student loans
–
Provided guarantee related to the origination of 522 billion won of student loans
in the 2nd half of 2005
 The Fund plans to provide guarantee to support 1.6 trillion won of student
loans in 2006
 Targeted Number of Student Loans : 500,000