24
SECURITIZATION: NECESSARY INSTRUMENT
FORVIETNAMFINANCIALMARKET
ASSOC. PROF. PHAM TIEN DAT, VUONG DUY LAM, MA.
- National Institute for Finance - Ministry of Finance*
Securitization is one of the most widely used financial instruments in developed countries in the United
State and Europe to diversify investment processes, thus enhancing liquidity and reducing risk in the
stock market. Although securitization might be one of the core drivers causing the global financial crisis
of 2008-2009, it still brings significant benefits to the stock market in particular and the financial market
in general. In Vietnam, although securitization still faces many barriers, it is still considered as a very
powerful tool for financial market, especially in the context of international integration. This paper
provides the basic concepts of securitization and its application in the global context, relating to current
situation in Vietnam to recommend some solutions for securitization’s application.
Keywords:
Banking, capital mobilization, finance, securitization, stock market
Received: December 17
th
, 2017
Revised: January 21
st
, 2018
Accepted for publication: January 28
th
, 2018
Introduction
Securitization is a type of structured finance
product derived from America financial market,
by the following reasons:
- From banking’s perspective:
Securitization
arises from “dead” mortgaged properties from
banks’ account and they need to take measures to
effectively handle the outstanding non performing
loans (NPLs).
- From economy’s perspective:
Securitization
arises from the demand of financial markets
in the United States in the 1970s to meet the
investors’ needs; at the same time, small and
medium enterprises find it difficult accessing to
bank’s loans.
Securitization appeared in the Europe in the
mid 1980s, marked by the first securitization
transaction conducted in England in 1987 in
the form of Mortgage-backed security (MBS).
The value of these securitization transactions
have raised sharply in France, Germany and
Italy lately.
In the early 1990s, around the world, many
banks and financial firms faced financial
difficulties. They quickly applied the ABS (Asset-
backed security) model to securitized loans,
sort out non performing loans, and streamlined
financial operations. This tool is called CDO
(Collateralized Debt Obligation), after that is
CLO (Collateralised Loan Obligation) and CBO
(Collateratized Bond Obligation). These new tools
have helped the financial community around the
world becoming more powerful and flexible to
take part in the global financial markets.
In Asia, securitization transactions began in
Japan and Hong Kong, where real estate markets
flourished in the early 1990s. During Asian
financial crisis in 1997-1998, securitization became
a useful tool used to handle non performing
loans. After that, the securities transactions with
the release of ABS became popular in Thailand,
South Korea in the 2000s.
The development of securitization market
shows that there are many types of products
that are dependent on securitized assets such as
mortgages, consumer loans (car purchases, credit
cards...). or on a commercial basis (finance lease,
commercial papers). Recently, securitization
has been used to promote the development of
photovoltaic solar power projects. In the United
States, SolarCity is the first unit to provide secure
assets in the solar industry in 2013.
Securitization transactions have become very
popular in the regional and international financial
markets with a large number of cross-border
transactions and European bonds (euro bonds).
Securitization has not been implemented yet
in Vietnam. However, in practice there have
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