The growing rate of delinquencies and defaults in Korea’s credit card business has caused a number of early amortisation of securitisation deals. While S&P points out that the actual risk of losses for investors is very limited, buyers of securities backed by Korean credit card receivables face early amortisation of their investment. To avoid such risks, many Korean credit card asset-backed securities are currently being restructured.
“Investors face reinvestment risk upon an early principal payout, while issuers must find alternative funding sources and incur any costs associated with the breakage of currency and interest rate swaps. Therefore, some issuers are trying to restructure their deals to delay or avoid early amortisation,” S&P said in a new report.
But Wong said the situation in Korea is not likely to affect all asset classes and types of securitisation such as collateralised debt obligations or mortgage-backed securities. Assets such as real estate are mature and have a long-standing history. The biggest impact is likely to be on asset classes with little history in the region, such as unsecured consumer lending, including personal loans or revolving credits.