Securitization: Bankers question merits of EIB’s SME solution
Europe’s policymakers hope a new programme to facilitate securitization will help set free lending to small and medium-sized enterprises. But ABS specialists doubt the initiative will work – and if it is needed at all.
In a speech given in February, European Central Bank board member Peter Praet declared that he considered the revival of the ABS market essential for the provision of finance to the corporate sector.
"Given the restricted funding sources and elevated bank funding needs, a trend towards more disintermediation from larger corporate issuers has been observed in recent years, and this trend will most likely continue," he said.
"By contrast, small and medium-sized enterprises (SMEs) are more dependent on their respective domestic banking sectors and are subject to tighter credit conditions than larger firms that have greater access to global financial markets. The question arises as to how these restrictions could be overcome. A reopening of the ABS market may be one way of enhancing funding conditions for SMEs."
The key to achieving this, according to the European Council, is the expansion of risk-sharing financial instruments between the European Commission and the European Investment Bank in order to leverage private-sector and capital markets investment in SMEs.
This took shape in the ‘EIB Group ABS initiative for SMEs’, which was launched this year and combined EIB investment in senior notes of SME-backed asset-backed securities with European Investment Fund guarantees for junior tranches.