Asset Securitization

Asset securitization is a transformation of illiquid assets which includes residential mortgages, loans or other credit exposures into a security, or a process whereby the interests are packaged, underwritten with classes sold in the form of asset-backed securities. There are few steps involved in the process through a bank or company (originator) pooled of loans or assets and sold it to the third party, typically a special purpose vehicle (SPV). In turn, SPV will transfer the pooling assets (also knowns as asset-backed security) to a trust, and it will issues securities, certificates, notes, or interests to investors. Asset securitization techniques are being sought by a number of Asian countries to promote home ownership, financing the growth

For all practical purposes, the Asian securitization of mortgage-backed securities began to Bank of America in Hong Kong in 1994. Hong Kong is probably the most securitization-friendly jurisdiction in Asia. To make the legal system to a structure ‘true sale’ transactions from legal perspective, the system is used base on English law. The legal framework, in particular bankruptcy law, is well developed, with a mixture of legislation and case law. The regulatory environment is perplexing, follow the England model for regulated institutions by a set of guidelines for regulatory off-balance sheet treatment. Hong Kong has no withholding tax on interest payments to non-residents and this will make the securitisation off-shore interest-bearing receivables become much easier compare to other Asian

It is required get the approval from the Ministry of Finance and Economy (MOFE) to transfer the receivables by a Korean resident to a non-resident. During year 1997, a number of transactions were worked on involved Korean merchant banks as the sellers of equipment lease receivables owed by Korean corporations. Due to the legal characteristics of a lease, it is a must to avoid the leases from subject to the risk of cancellation by a lessor, approval to the lessee was obtained or will be given by notice. The rating agencies has effectively brought work to close out the transaction in terms of giving the downgraded rate of Korea coupled with the currency and economic crisis. Another problem familiar by now in Asian transactions, was the issue of withholding tax which is payable on interest payments to a non-resident. By comparing Hong Kong and Korea countries, that is more information to result on how asset securitization play a significant role in