SMC seeks banks' help with longer loan term

The Finance Ministry, meanwhile, is wary of pouring more money into the institution.

President Duangporn Arbhasil said yesterday the SMC had negotiated with partners, banks and developers to offer mortgage products that feature a longer fixed-rate term and longer repayment term, such as 25 or 30 years. Banks usually offer a fixed rate of only about one year, she said.

The SMC enjoys a lower cost of funds than commercial banks, so it could launch such products with a longer fixed rate, which would help home-buyers manage risks from market volatility, she said.

Both state-owned and commercial banks have agreed to extend the loans on behalf of the SMC - which has no authority to provide loans directly to home-buyers - and then sell the loans to the SMC. The SMC will hire banks to service customers and collect payments.

The SMC plans to buy mortgages worth about Bt3 billion from banks and by year-end to raise funds by issuing bonds backed by part of its mortgage portfolio.

The securitised bonds would test the market. If investors are interested more in mortgage-backed bonds than ordinary bonds, the SMC should realise a lower cost of funds, Duangporn said.

Securitisation is new to the local market and investors have not yet fully understood the concept, she said, adding that SMC's bonds have not been popular in the past, resulting in higher funding costs.

The SMC's securitiszed bonds are not as complex as securitised products in the United States, such as collateralised debt obligations, which have been partly blamed for the current sub-prime crisis there, said Pornnipa Hachaiyaphum, senior vice president of the SMC.

The SMC also asked the Finance Ministry, its owner, to increase its capital by Bt600 million, hoping to lower its funding cost and build up its portfolio.

Deputy Finance Minister Pradit Pataraprasit said he wanted to monitor the SMC for a while before the ministry commits to an injection of capital. The SMC is undergoing restructuring after its executives were charged with fraud.

Pradit wants to see how good SMC's new executives are in running the business.

However, the SMC is still needed to play a role in the development of the secondary mortgage market, he said.

The SMC's non-performing loans now make up about 7 per cent of its outstanding portfolio of Bt2 billion after it wrote off bad assets worth Bt320 million.