Approval last Friday of the Financial Asset Securitization Law could potentially reinvigorate domestic banks by allowing their asset-backed loans to be packaged into securities.
With securitization, local banks can transform their illiquid but revenue-producing assets into securities, which can then be traded on the capital markets.
These include housing loans, vehicle loans, credit card receivables, trade receivables and other assets.
The Ministry of Finance estimates that the asset-backed securities sector could be worth around NT$1.4 trillion in a market that represents about 10 percent of all outstanding loans in Taiwan.
Hoping to cash in on what is expected to be a good money earner, the ministry said it will encourage government-backed funds to invest in asset-backed securities.
Pioneered in the US in the 1960s, financial-asset securitization is designed to help resolve capital shortages of banks and boost the liquidity and utility of bank assets.
The newly passed law requires loans to be sold to a third party -- such as a special purpose company (SPC,
According to a legal brief issued by the Yangming Partners law firm, special purpose companies are companies that are limited by shares and incorporated by financial institutions to engage in the securitization business.
These companies also can be incorporated offshore by financial institutions, with government approval.
Indicative of the action corporations expect to see with the passage of this law, the Industrial Bank of Taiwan (
Chinatrust Commercial Bank (
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