"We hope banks will turn to securitisation in the next two or three years. The formation of the Deposit Insurance Agency will motivate banks to raise more funds through securitisation," BEX chief executive Santi Kiranand said yesterday.

The agency is expected to be set up in the next three years and will provide only partial insurance on deposits at financial institutions. This will prompt depositors to seek other financial instruments for investment.

Santi said banks had not issued many securitised bonds in recent years, because of ample liquidity from deposits.

However, more banks are expected to raise funds via securitisation from next year, because investment will likely jump once a new government is installed and their liquidity eventually dries out.

Santi said asset-backed securities would also reduce banks' burden of contributing 0.4 per cent of their total deposits and borrowing to the Financial Institutions Development Fund.

He said assets sold through securitisation would help banks lower their provision-reserve burden.

The BEX plans to boost bond supply by encouraging large state enterprises to issue securitised bonds to finance their business expansion.

Egat is the BEX's priority target for issuing securitisation, because increasing capacity at its four power plants would require about Bt10 billion for each one.

"Egat can use electricity-sale agreements as an asset for issuing securitisation. Others on our list are PTT and the Government Housing Bank," said Santi.

"We hope securitised bonds from high-quality issuers like Egat and PTT will provide a good investment alternative for the public."

The government plans to increase the size of its outstanding-domestic-bond market to 80 per cent of the country's gross domestic product (GDP) by 2010. Currently, the size of the bond market is about Bt3 trillion, or 44 per cent of GDP.

Santi said to achieve the target, banks and the private sector must be encouraged to issue more bonds, because the government's limit on public debt prevented it from issuing much new supply.

Siriporn Chanjindamanee

The Nation