Market Sees Sharp Decline: Household Loan Interest Rate MBS Issuance Plunges 40% in Q3, ABS Takes a Hit

Market Sees Sharp Decline: Household Loan Interest Rate MBS Issuance Plunges 40% in Q3, ABS Takes a Hit

October 29, 2024 Catherine Williams Business

In the third quarter of this year, the amount of asset-backed securities (ABS) issuance plummeted by nearly 40% compared to a year ago. This is due to a decrease in the issuance of mortgage-backed securities (MBS), which use mortgage-backed bonds as the underlying asset. As the uncertain business environment such as high interest rates and economic recession continues, the issuance of ABS based on non-performing loans (NPL) is steadily increasing.

According to the Financial Supervisory Service on the 30th, the amount of registered ABS issuance in the third quarter was KRW 10.7 trillion, a decrease of 39.3% (KRW 6.93 trillion) compared to the same period last year (KRW 17.63 trillion). MBS issued based on mortgage-backed bonds plunged 67.6% (8.29 trillion won) from 12.26 trillion won a year ago to 3.97 trillion won in the third quarter. This is because the growth of MBS underlying assets such as Bogeumjari loan and qualified loans slowed due to the government’s order to strengthen household loan regulations.

ABS refers to securities issued based on assets such as real estate, loans/sales bonds, and mortgage bonds. It is mainly issued to secure cash in a short period of time using relatively illiquid assets as collateral.

By asset holder, the amount of ABS issuance by Korea Housing Finance Corporation and general companies decreased, while the amount of ABS issuance by financial companies increased significantly. The amount of ABS issuance by banks, including savings banks, increased by 43.6% (KRW 1.706 trillion) in one year, reaching KRW 1.805 trillion.

In particular, ABS issuance based on NPL was KRW 1.93 trillion, an increase of 71.6% (KRW 8.288 trillion) compared to the same period last year (KRW 1.125 trillion). This is in order to secure asset soundness through the sale of non-performing loans as the delinquency rate in the financial sector increases as high interest rates continue.

The credit company issued rental bond-based ABS worth 40 billion won. This is the first issuance since the amendment to the ‘Enforcement Decree and Supervision Regulations of the Credit-Specialized Financial Business Act (the Act)’ went into effect last May. Through this, female warriors were able to securitize bonds from ancillary businesses, such as rental businesses, in addition to bonds from their own business, such as installments and leases.

ABS issuance based on trade receivables also increased. It recorded 3.8505 trillion won, an increase of 37.6% (1.052 trillion won) from 2.798 trillion won a year ago. This is due to the rapid increase in credit card bonds (21.8%) and installment finance bonds (127.3%). Issuance of P-CBO (collateralized bond securities) decreased by 32.6% to KRW 778.8 billion.

The total ABS issued balance was 258 trillion won as of the end of September, an increase of 5.2% (12.8 trillion won) compared to the same period last year.