NPL&REO News

NPL sales using securitization should become easier, EBA says

Until recently, it has been difficult for European banks to sell their non-performing loans (NPL) using securitizations, and rules should be put in place to make the process more attractive, according to the European Banking Authority (EBA).

Under current rules, potential buyers of bundles loans face «very high capital requirements» for owning the assets, the EU’s banking watchdog said in opinion sent to other policy makers. On top of that, new regulations governing asset-backed securities are causing «compliance challenges» for bad-debt sellers.

The issues result in «higher funding and transaction costs, depress the price of assets, increase the originating institution’s losses and make securitizations an unattractive funding tool», the bloc’s top banking regulator said.

Over the last years, Europe’s banks have faced pressure form EU regulators to reduce their piles of non-performing loans. The total stock fell to €636 billion at the end of June from more than one trillion euros in 2016, according to the EBA. But levels remain elevated in some member states, including Greece, Cyprus, Portugal and Italy.

Until now, lenders have several options when it comes to getting rid of soured assets. They can keep them and absorb the loss, package and offer them at a discount or securitize them, where loans are bundled and sold in tranches with different levels of risk. While the latter is the most costly and complex kind of transaction, it can appeal to a broad range of investors, leading to better prices for sellers, the EBA said.

Recently, Italy and Greece have launched programs with government guarantees to promote the market for securitizations of non-performing loans (NPL). UniCredit SpA is currently preparing to sell €6.06 billion of soured debt through a securitization. Yet. Overall, the method «remains small compared to outright portfolio sales», the EBA said.

However, any rule changes are unlikely to come quickly, as they would need action from the European Commission and may elicit further debate in the block’s parliament and in national governments.

Original Story: Asset Securitization report |Bloomberg News
Photo: FreeImages.com/Szymon Szymon
Edition: Prime Yield

Top