Securitization: Boom is only just beginning


Kathryn Wells
Published on:

EMEA to see further growth in asset-backed transactions.

Record securitization revenues were recorded from the EMEA region last year, with the total to the beginning of December reaching €6.9 billion, almost double the total for the whole of 2004 (€3.5 billion).

Analysts believe there should be further growth this year. “The EMEA securitization market is enjoying a newfound confidence by local originators and western capital investors alike,” says Standard & Poor’s credit analyst Alice Keegan.

According to Keegan, the two biggest contributors to last year’s record levels were Russian issuers entering the structured finance market for the first time and increased issuance from Turkey.

Emerging-market issuers are drawn to the asset class by the diversification it offers.


Two structures look set to continue their domination. “Cross-border future-flow transactions are currently the most prevalent, while existing-asset transactions are less common given certain regulatory and legal hurdles associated with emerging-market securitization,” says credit analyst Emily Bradley.

Part of the attraction of future-flow structures is that the structure usually mitigates certain sovereign risks, therefore allowing a rating that might be higher than the sovereign’s.

Securitization should continue to grow in 2006. Reasons for this include the current volume of existing-assets in the region; a general growth in consumer lending; lower inflation and lower interest rates across the region that fuel the growth in assets; banks’ desire to diversify their funding sources; and increased investor appetite for new asset types in the current narrow-spread environment.

Different strokes

But different parts of EMEA are expected to produce different types of securitization. The retail banking boom in the countries that have recently joined the EU should provide impetus for consumer asset issuance, such as mortgages, car and consumer loans. Residential mortgage backed securities might well constitute the bulk of issuance from Russia; Turkish issuers are likely to focus on transactions backed by diversified payments rights.

The big difference between Russian banks’ average long-term ratings and the credit quality of their assets means that they have a large incentive to look at securitization. Equally, banks’ and corporates’ low ratings mean that future-flow transactions are more difficult to achieve, as they would be unlikely to achieve investment-grade ratings and would not, therefore, attract a large new pool of money.

Some future-flow transactions have started to come from Kazakhstan and, according to the S&P analysts, interest in RMBS is coming from Kazakhstan and Ukraine.