There is a lot of demand for securitisations, but the supply has shrunk. Certainly in the Netherlands, where banks prefer to issue covered bonds, says Joost Beaumont, Senior Fixed Income Strategist at ABN AMRO Bank. Uncertainty about regulations, in particular, and the complexity of these regulations heavily impact the market.
For example, the STS has been under development for several years now. The goal of this framework is to make securitisations simple, transparent and standardised. ‘Even ‘though it has not been completed yet, it is clear that the regulations will continue to treat covered bonds more favourably than ABS. This will not change and that puts a brake on the issuing of ABS,’ says Beaumont. ‘As a result, a choice for covered bonds is quickly made.’
‘As soon as the regulatory uncertainty ends, the market may indeed get a new impetus. But I do not expect the volumes to return to the levels of before the credit crisis. In the Netherlands, the traditional issuers of RMBS switched to issuing covered bonds. These programs are much more flexible and cheaper than RMNS.’
‘Even though securitisations have become less interesting as a funding tool, they may start playing a greater role for capital relief. For example, Italian banks are currently making up for non-performing loans via the ABS balance. This is impossible via covered bonds. Capital and balance sheet relief transactions are also a lot more interesting as a result of the new Basel rules. The need for Dutch banks to reduce balance sheets risks is limited, especially now that the economy is recovering well, and the number of bankruptcies is decreasing. Currently, the costs may well be higher than the benefits.’
‘I do not expect any major impact on the market, although this depends on the final deal between the United Kingdom and the European Union. Will it be a hard Brexit or a soft Brexit? In the event of a hard separation, the British market is no longer subject to the regulations of the European Union. It is possible that British securitisations will receive a less favourable treatment in that case. On the other hand, it is likely that the yield will be higher, so that the demand from investors will not necessarily cease to exist. In particular, the British prime RMBS market, with solid mortgages, will remain attractive for investors. However, the interest in securitisations with consumer loans will decrease if the British economy enters a recession.’
‘It is an attractive option for institutional investors to invest in direct loans, such as mortgages and consumer loans, but the direct lending market is still in its infancy. Banks will certainly continue to play a major role in mortgages, as they have a lot of experience estimating the credit risk of customers. In addition, if these platforms start developing more quickly, the regulators will start carrying out more supervision. That may impede the growth. For the parties behind these initiatives, the securitisation of loans is nonetheless an attractive source of financing.’
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Geplaatst op: 15 februari 2018
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