Research On The Pricing Issue Of NPL-backed Securities

In recent years, much attention has been paid to asset securitization in all kinds of researches, but few of them touched upon the field of Non-Performing-Loan (NPL) securitization; as for the issue of how to price the NPL backed securities, almost no study has been done. Exploring the research field of pricing the NPL backed securities, is not only of significant importance from a theoretical view, and also meets the prompt needs of the NPL disposition practices. Applying the management, economics, accounting and other related theories, combing qualitative and quantitative analysis, and focusing on the practices of China's Asset Management Companies and the specific characteristics of NPLs, this paper did an in-depth research on the issue of pricing the NPL backed securities. The study is mainly on the following matters.This paper analyzed in depth the difference between the pricing of the NPL securitization and that of ordinary asset securitization, and summarized the characteristics of the NPL securitization, and considered that, in respect that all NPLs are overdue loans, and it is impossible to collect the loans according to the original loan contracts between the borrowing enterprises and the banks, nor can there be any advance recovery issue, therefore there is no need to establish an advance-payment basic model to calculate the cash flows from the fundamental assets in each period.The payment of the NPL backed securities is totally funded from the cash flows from the fundamental assets, which is realized by disposing NPLs. In order to accurately price the NPLs to be securitized, it is needed to sort out and classify the fundamental assets, design a scientific pricing method to estimate the value of fundamental assets, reasonably estimate the cash flow distribution in each period, scientifically evaluate the credit risk of the fundamental assets, and finally decide the price and scale of the NPL backed securities issuance.Due-diligence investigation on the asset pools to be securiticized is the precondition of pricing asset backed securities (ABS). In this paper, the author thoroughly explained the definition and classification of the general due-dilligence investigation, its working procedures and also how to analyze and assess it. In related to the specific characteristics of NPLs, the paper analyzed the specific connotation of the due-diligence investigation on NPLs, and pointed out the roles and the effects of the due-diligence investigation in the non-performing loans securitization process, and then designed a scientific working manual for the due-diligence investigation on NPLs.Measuring the related risks involved in the NPL securitizing process is a critical step in pricing NPL backed securities. In this paper, the author analyzed in detail the sources and measuring methods of all risks resulting from the NPL securitization process, the effects of risks on the pricing, proposed a corresponding risk control strategies, and finally explained how to integrate the risk analysis into the whole pricing process of securitizing NPLs.According to the characteristics of NPLs, this paper proposed two ways to price the NPL backed securities, i.e., the model estimation way and the experiential estimation way. For the first time, the author proposed four NPL pricing methods, which are, the disposition simulation method, the factor analysis method, the classification pricing method, the extrapolation pricing method, and established a method system of pricing NPL backed securities. The rationale, pricing thoughts and working procedure of three securitization pricing methods, including the factor analysis method, extrapolation pricing method and the disposition simulation method, are explored in detail in this paper.The pricing issue of NPLs is a difficult problem for all the theoreticians and practicians over the world, till now there is no mature method to solve it. And the study on the pricing of NPL-backed securities is only at a start, no matter in research or in practice field. No doubt that there are some defects and omissions in this study, and in various aspects more in-depth studies are needed. The author sincerely hopes that the follow-up researchers and studies could go farer than himself and this study.