Media Coverage / 16 June 2020
Measuring Mortgage Loan Quality in The SMF-BTN Residential Mortgage Backed Securities (EBA-SP)
Anggara Pernando – Bisnis.com
May 28th 2020
PT Sarana Multigriya Financial (SMF) routinely secures Mortgage Loan / KPR in cooperation with the National Savings Bank (BBTN).
Bisnis.com, JAKARTA – Securitization of housing loans (KPR) owned by PT Bank Tabungan Negara (Persero) Tbk. (BBTN) by PT Sarana Multigriya Financial (SMF) has been present in the market for 5 years. This instrument is an alternative investment for retail or corporate investors. What is the investment risk?
An asset-backed securities collective investment contract in the form of a participation letter (KIK EBA-SP) issued by the SMF is a securitization of a collection of receivables on the basis of a mortgage loan (KPR) distributed by banks. One that is diligent in securing its receivables is PT Bank Tabungan Negara (Persero) Tbk., (BBTN).
SMF itself is a special vehicle under the Ministry of Finance that plays a role as a secondary housing finance institution. SMF products with BTN which are currently still listed on the Indonesia Stock Exchange, namely the EBA-SP SMF-BTN01, which was issued late 2015.
In its journey, until 30 April 2020, SMF has conducted five times the securitization of KPR owned by BTN with a total issuance of IDR 5.54 trillion. The details of EBA-SP BTN 01 in 2015 amounted to Rp.181.6 billion, EBA SP BTN 02 amounted to Rp913 billion, EBA SP BTN 03 (Rp913 billion), EBA SP BTN 04 (Rp1.82 trillion) and EBA SP BTN 05 (Rp1.76 trillion).
Each EBA consists of several series. Generally Series A and Series B. Holders of Series A get a certain return with principal amortization and are protected by a collection of mortgages held by series B. investors
In the BTN 01 EBA SP, based on a report to the Indonesia Stock Exchange, bad loans (NPL) of more than 91 days as of 30 April 2020 in the collection of mortgage loans reached 2.59 percent of the EBA-SP ceiling. Even so, the holders of securities remain calm because the collection of bills is sufficient for all principal and interest payments that have been fully and received by Series A investors. The most recent mortgage in this first phase of securitization is due on March 7, 2022.
While in EBA-SP BTN-SMF 02, bad loans (NPL) reached 5.37 percent of the issued ceiling. The breakdown of bad loans above 91-120 days 0.57 percent or IDR5.21 billion, 121-180 days bad loans of IDR8.61 billion (0.94 percent) and non-performing loans over 181 days worth IDR35.21 billion (3 , 86 percent).
The largest non-performing loan compared to the EBA SP ceiling was recorded in EBA-SP SMF-BTN 03 with NPI reaching 7.04 percent. EBA SP issued in 2017 recorded bad loans over 181 days reaching 5.37 percent or equivalent to Rp.48.99 billion, 121-180 days of bad loans by 1.04 percent and 91 days-120 days of bad loans by 0.62 percent .
Two of the newest SMF-BTN EBA-SPs, series 04 and 05, recorded non-performing loans (NPLs) above 91 days compared to the ceiling issued respectively at 4.84 percent and 2.86 percent.
Heliantopo, Director of Securitization and Financing SMF, said that the EBA-SP issued by SMF has been structured with layered credit enhancement mechanisms especially for class A investors.
This method is through the establishment of a Class B credit pool. This series protects the investments of class A securitization holders. The amount of the class B formed by the SMF in each securitization is based on the results of the rating agency’s assessment that is preceded by an examination of the quality of the securitized KPR.
“The smaller the portion of Class B, the existing KPR pool is considered to be less risky,” Heliantopo said to Bisnis on Friday (5/15/2020).
According to him, class B holders will only receive opinions from the Cashflow residual on the KPR interest collection. This securities are principally not paid until class A is paid off.
Another protection established for securitization investors, he said, is that when the NPL continues to increase, the income of Class B holder investors will decrease.
“Even in the worst case scenario it doesn’t get [income] at all. Based on the projections on the EBA structure, the protection mechanism for Class B will still exist until the nominal NPL is at the nominal Class B. However, the current EBA SP KPR, the principal of Class A investment is amortized every 3 months, while Class B does not. In other words, the Class B bumper against Class B will be thicker than when the EBA SP was published, “he said.
Heliantopo also mentioned another protection for KPR securitization investors is to prepare a reserve account by the issuer for one class A coupon payment. This fund can be used when class B cannot cover the NPL in the pool.
“The advantage of the EBA-SP KPR, is the underlying KPR in the form of real assets, that is, houses that can be executed [auctioned], so that when there is a significant increase in NPLs over a period, the cervicer is obliged to execute the KPR, then the proceedings are forwarded to investors, “He said.
Protection for investors is no difference between the treatment of retail and institutional investors. Both in the payment of coupons and the payment of a portion of the principal.
“Proportional principal payments depend on the principal amount of the investment. The tax treatment is also the same as other fixed income tax effects, “he said.
Adi Santoso B, Institutional Banking Division Head of the National Savings Bank (BTN) said that the older the age of securitization, the NPL will tend to rise. But the value can be considered insignificant because credit has been running for a long time.
“Our effort is to provide guidance to securitized KPR debtors,” he said.
Another step taken by BTN for bad loans in the EBA-SP is by clearing bills by conducting clean up calls. This step can only be done after the requirements of the regulator are fulfilled.
Adi said that all risks in EBA-SP are borne by the securitized assets. The biggest risk is held by class B investors who get higher interest payments. At the time of coupon payment, class A investors get fixed yields that are pegged at the beginning.
For class B investors, the returns obtained come from the remaining coupon payments which, if calculated as a percentage greater than class A. Even so, if the collection of mortgage payments is not on target, class B investors get a small profit because the priority of the first payment recipient is the class investor A.
“The risk [for investors holding securitization] that might occur will be backed up with reserve funds or commonly called Reserve Accounts. BTN and SMF do not bear the risk, but the class B investors will bear the risk, “he said.
Director of Research at the Center for Reform on Economics (CORE) Piter Abdullah said mortgages in Indonesia were channeled strictly. For this reason, NPLs occurring in securitization are relatively small compared to the total loans extended by banks.
“The risk is not as great as what happened in America when there was a subprime mortgage, because our KPR is not a subprime type [low quality]. The process of disbursing mortgages in Indonesia is still more careful, so even though the NPL credit is not a measure, “he said.
He also stressed that BTN has strong financial capabilities. With this condition, investors have a strong grip on their choices in investing in EBA-SP.
Soucre : Bisnis.com