Eurozone securitisation – the packaging-up and reselling of loans – has contracted to the lowest since at least the start of the region’s debt crisis as banks have reined back lending activity, especially to Spain’s housing market.
Debt securities issued by special purpose vehicles used for securitisation shrank by €72bn during the three months to the end of September, according to European Central Bank figures released on Monday.
The total amount outstanding at the end of the quarter was €1.68tn – the lowest since the ECB started compiling such figures at the start of 2010.
The shrinkage highlighted how a combination of slow economic growth, the bursting of housing market bubbles, declining investor demand, and banking reforms have hit Europe’s securitisation business, which had expanded rapidly before the global economic crises that first erupted in 2007.
“The fall reflects weakness in demand for these products, in particular, because of perceptions of what is going on in southern Europe, and pressure from regulators,” said Christian Aufsatz, securitisation analyst at Barclays.
“Securitisation” involves transferring pools of assets such as mortgage loans into a special purpose vehicle, which then issues “asset backed securities” or marketable debt instruments. At the start of 2010, when the ECB series started, outstanding debt securities issued by such vehicles, known for statistical purposes as “financial vehicle corporations”, were worth more than €2tn, according to the ECB.
“In the current regulatory environment, it is not going to turn around in the next year but we could see a pick-up in 2014,” said Marjan van der Weijden, head of European structured finance at Fitch Ratings.
As well as lending to households and businesses, trends in the securitisation industry’s activity have been driven by banks’ use of ABS as collateral when they draw liquidity from the ECB. The ability of banks to use ABS as collateral at the ECB helped avoid liquidity shortages at moments of financial market stress.
The latest figures showed some €957bn in ABS created in the eurozone – more than half the total – was retained on banks’ balance sheets, much of which would have been used as ECB collateral. But the volume of ABS retained on banks’ balance sheets has also declined since the start of this year.
Much of the latest quarterly fall in total securitisation activity was explained by the decline in Spain, which was thrown into economic crisis by the collapse of its housing market. Debt securities issued by Spanish special purpose vehicles contracted by €35bn in the third quarter of this year – or about half the eurozone total.
Other factors that could explain the downward trend include the increased reporting requirements required for ABS issuance, which the ECB has demanded. Banks have also shifted towards issuing covered bonds and have tapped other, less expensive sources of funding – including loans from central banks. Changes in bank regulations have, meanwhile, encouraged investment in corporate bonds or in the loans underlying ABS.
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