The first tranche of the securities, a minimum of Bt10 billion, will be issued domestically, Khan Prachuabmoh, the bank's president, said over the weekend. This was due to concerns at the Public Debt Management Office about whether the mortgage-backed securities would be classified as public debt.

In total, the bank said it should raise Bt40 billion from mortgage backed-securities internationally and domestically.

Securitisation is a financing mechanism that pools financial assets, typically loans, then sells them to bond investors.

A bank can invest in mortgage insurance of up to Bt10 billion without having to ask the Finance Ministry to seek a royal decree, according to the Government Housing Act.

Khan said mortgage-backed securities were not viewed as public debt elsewhere.

Leland Sun, chairman of Pan Asian Mortgage, said: "It should not be considered public debt. From investors' standpoint, GHB owns the assets from its debts. Once the assets are securities, the investors take all the risk."

He added that the mortgage-backed securities market is the largest bond market in the world, totalling US$5.7 trillion (Bt199 trillion) as of the third quarter of 2003.

Earlier, Khan said 27 investment bankers had submitted proposals.

He added that despite the current economic doldrums, GHB had started accepting proposals because the process took time. The deadline is May and it will take another few months to consider the proposals and select the arranger.

Khan pointed out that securitisation would let the bank expand access to funding globally and enable it to increase business without increasing its debt level.

Once complete, GHB's mortgage-backed securities will be the first issued by a Thai bank.

Thai banks have not taken this route because it reduces assets and commercial banks here tend to measure their performance by the size of their assets, Khan said. This is not the case of GHB, which focuses more on operations, he said.

Chom Sumanaseni, a consultant to GHB, said the securitisation should benefit customers in the long term because it reduced lending costs and enabled the bank to cut the minimum retail rate it charges borrowers.

GHB approved Bt6.7 billion of new loans in January and Bt8 billion in February. However, in the first 16 days of this month, it approved just Bt3.6 billion, a considerable drop from the same period last year. Last March it approved Bt12 billion worth of new loans.

The target for loans this year was about Bt90 billion, or Bt7 billion to Bt8 billion a month, Chom said.

Jeerawat Na Thalang

The Nation