Malaysia's central bank has been quizzing international firms about collateralized debt obligations and that has some forecasting the regulator may green light the market. CDOs are currently implicitly off limits because there are no rules covering them.
Bank Negara Malaysia has already paved the way for simple credit-linked products that may be purchased by local banks with its Guidelines on Regulatory Treatment for Credit Derivative Transactions issued late last year.
"I expect to see the first few deals completed this year," said a senior credit structurer at a bulge-bracket house in Hong Kong. The central bank has been lining up special visits with bankers to discuss the structures as well as attending special seminars arranged by credit houses.
Credit officials are also tipping Malaysia to be a more active market than neighboring Thailand--which has seen a handful of CDOs in the last year--given its larger banking sector. "There's definitely potential," said Myrna Fajardo, senior analyst at Moody's Investors Service in Hong Kong.
"The regulators must be keeping an eye on developments in the region," said an official at Deutsche Bank. Other local markets have been opening to CDO investments including Thailand, Taiwan and Korea and CDOs have been on the radar screen in Malaysia since last year (DW, 7/1).
Credit officials said once domestic banks are comfortable with products such as total-return swaps, credit-linked notes and first-to-default baskets, additional leeway will be given for the asset class.
Lee Poh Fong, spokesman at Bank Negara in Kuala Lumpur, did not respond to messages by press time.
