[PENDING] SECURITIZATION OF RECEIVABLES

In particular, the loan agreement may require the FI agent or the borrower to agree to the sale. The loan sales market has gone through many ups and downs in recent years.

Need for securitization

The initial response to this was the development of financial intermediation: an intermediary such as a bank would pool the resources of small investors and use them for the larger investment needs of the user. In addition, an important piece of investor information is the quality and price of the instrument, both of which are much more easily known in the case of instruments than in the case of underlying financial transactions.

Parties Involved

There is no uniform name for the securities issued by the SPV as they take different forms. These securities can either represent a direct claim of the investors on everything that the SPV collects from the claims transferred to it: in this case the securities are called 'pass through' certificates or certificates of economic interest, because they are certificates of proportionate economic interest in the assets imply. held by the SPV.

Features of securitization

Therefore, the originator transfers the assets to the SPV, which holds them on behalf of the investors and issues its own securities to the investors. To the investor's satisfaction” is a relative term and therefore the originator of the securitized instrument insures the instrument based on the needs of the investors.

Securitization and Financial Disintermediation

Utilities added by financial intermediaries

The intermediary bank pools the funds of small investors to meet the typical needs of the company. An average small investor will either not be aware of the lending company or not know how to appraise or manage the loan.

Changes the function of intermediation

The risk as perceived by investors in investing in a bank may be much less than that of investing directly in the company, although in reality, the financial risk of the company is transposed to the bank. Securing puts these intermediary services in the background by making it possible for the end user to offer these features in the form of security, in which case the focus shifts to the most essential function of a financial intermediary: that of distributing a financial product. .

Securitization changing the face of banking

If, in the above case, the company issues debentures to the public to replace a bank loan, it eliminates the intermediary altogether. For example, in the above case where the bank that was the former intermediary was eliminated and instead the services of an investment banker were sought to distribute bond issue, the focus shifted from the pooling tool provided by the banker to the distribution tool provided by the investment banker.

Economic impact of securitization

Securitized lending introduces the ability to sell assets on a larger scale and eliminates the need for financing and monitoring. This change from a four-step process to a three-step function has been described as the fragmentation or separation of traditional lending.

Facilitate creation of markets in financial claims

Disperses holding of financial assets

Promotes savings

Reduces costs

Diversifies risks

Focuses on use of resources, and not their ownership

SECURITIZATION OF RECEIVABLES

Mortgages

Primary Mortgage Market
Fixed–Rate Mortgages (FRM)
Adjustable-Rate Mortgages (ARMs)

Major Forms of Asset Securitization

The Pass-Through Security
The Mortgage – Backed Bond (MBB)

Prepayments

Factors affecting prepayments

Securitization of other assets

Certificates of amortizing revolving debts (CARDS)

Can all assets be securitized?

One of the choices a family makes in the mortgage market is the type of loan they get. During the early part of the mortgage loan, interest payments far exceed the principal component.

SECURITIZATION IN EUROPE

Overview of European Securitization Market
European Securitization Forum (ESF)
Statistics

European Securitization Issuance Totals
By Country of Collateral
By Collateral Type
Pfandbrief

European Securitization Markets

United Kingdom
Germany
Spain

Issuance of securitized debt consisting of UK assets totaled EUR 34.5 billion in the first three quarters of the year, an increase of 6.8% compared to the EUR 32.3 billion issued in the same period 2001 was released. The volume of securitization in France, Denmark and Belgium also increased. in the first three quarters of the year. The volume of securitization in Portugal in the first three quarters of the year amounted to 1.3 billion euros, a decrease of 53.4% compared to the 2.7 billion euros issued in the same period last year.

In the ABS sector, CDOs accounted for 27.4% of the securitized issuance in the first three quarters of the year. In the MBS sector, RMBS accounted for more than 65.5% of MBS issuance in the European securities market for the first three quarters of the year. New Pfandbrief issuance totaled €159.9 billion in the first three quarters of the year, up 15.6% from the €138.3 billion issued in the same period of 2001.

German Pfandbrief issuance rose to €136 billion during the first three quarters of the year, an increase of 10.3% from the €123.3 billion issued in the same period of 2001. Compared to the same period in 2001, Luxembourg and Switzerland the issuance of Pfandbrief in the first three quarters of the year, a total of 3.2 billion Euro and 2.7 billion Euro respectively. Subject to the exceptions, neither the originator nor any of its affiliates may participate in the financing of the SPV during the transaction.

SECURITIZATION IN GREECE

Latest news of Securitization in Greece

Alpha Bank is looking into working with foreign banks to securitize its mortgage loans and credit card balances. Aspis Bank is the first bank that has already decided to participate in this program when the legislative framework is completed. According to its vice president, Aspis is going to securitize a large part of the mortgage loan portfolio, which is 65% of the total loans.

The Legislation framework in Greece

One of the main reasons for the late completion of the legislative framework in Greece is the capital adequacy of banks. According to the ECB, as we mentioned at the beginning of this chapter, the average capital adequacy for many banks has been 'unofficially' reduced to below 8%, which is the minimum acceptable limit. The priority for Greek banks is to improve their capital adequacy as it has fallen to “dangerous” levels for most of them.

If they manage to improve it, then they will use other financial tools such as securitization, to reduce credit exposure, reduce illiquidity by holding loans and generally improve their balance sheets.

Securitization of Secured Consumer Loans Originated by Kotsovolos

Parties and definitions
Features of Assets
The Transaction
Transaction Structure
The Agent Bank Role

Service Provider” means Kotsovolos that will be designated as such pursuant to the Standby Services Agreement with SPV. Swap Counterparty" means the company that will enter into the Swap Agreements with the SPV. Pursuant to the terms of this Agreement, the Agent Bank will indemnify the SPV regarding the validity and enforceability of the Bank Loan Agreements relating to the Eligible Receivables which will be transferred to the SPV.

Once an agreed amount of Eligible Debtors has accumulated, the Bank will assign these Eligible Debtors to the SPV. The SPV will therefore succeed to the rights of the Agent Bank under the guarantees will continue to secure such sold Eligible Debtors. They will be held by Kotsovolos as agent for the SPV and will be transferred daily to an account in the name of the SPV outside Greece.

The Subordinated Loan Agreement will be executed outside Greece and all payments by Kotsovolos under it will be made to an account with the SPV located outside Greece.

BANK

BORROWER ΚΩΤΣΟΒΟΛΟΣ

Why should the Agent Bank get involved?

First of all, this transaction will be the first non-state securitization transaction in Greece and therefore very prestigious.

Criticisms about Kotsovolos’ securitization

The agent bank will also benefit from the publicity of the transaction and gain invaluable experience by being involved in the securitization process. Financial institutions did not engage in securitization because the use of this financial tool was not very important. So Kotsovolos chooses this route because outside of Greece (in the US and in many European countries) securitization has been around for many years and companies, FIs, that deal with securitization have a lot of experience with these types of transactions.

These types of securities are not known here in Greece because the legislative framework is not yet complete. By securitizing its loans and issuing bonds abroad, Kotsovolos is very prestigious for a Greek company and will benefit from the publicity of the transaction. This transaction will also improve the reputation of Kotsovolos, apart from the Greek market, and in foreign markets.

As a disadvantage of this move, to go abroad, we think that the cost of the whole procedure is very high (administrative cost, service fees) due to the large number of parties that are made to complete the procedure, and high. the payment levels they may require due to their experience in securitized loans.

BANK FOR INTERNATIONAL SETTLEMENTS (BIS) AND SECURITIZATION

Second Working Paper on the Treatment of Asset Securitizations

Introduction
Scope of the Securitization Framework
Risk-Based Capital Ratios
Calculating Risk-Based Capital Ratios

Credit Risk-Adjusted On-Balance Sheet Assets under Basel I
0% weight): Cash, Central Bank balances, Government securities
Category 4 (100% weight): All other on-balance sheets assets not listed above, including consumer loans and credit cards, investments in subsidiaries

Credit Risk-Adjusted On-Balance Sheet Assets under Basel II

The result and the risk-tranched exposures will be linked to the underlying credits. Under both the current (Basel I) and proposed (Basel II) capital adequacy rules, risk-adjusted assets represent the denominator of the risk-based capital ratio. This means that of the total risk-based capital percentage of 8%, a minimum of 4% must be held in core or basic capital.

To calculate the credit risk adjusted assets of the bank, we multiply the amount of assets it has in each category by the appropriate risk weight. For example, under Basel I, all corporate loans have a risk weight of 100%, regardless of the lending firm's credit risk. To calculate the credit risk adjusted assets of the bank, we again multiply the amount of assets it has in each category by the appropriate risk weight.

Numerical examples have shown that the result is a decrease in the credit risk weighted value of assets on the bank's balance sheet.

THE FUTURE OF SECURITIZATION IN GREECE

Another problem that the FIs will face is the inexperience of the Greek financial market with such financial instruments. This probability is going to be very good for the popularity of Greek FIs among foreign investors. When the mechanism starts working and FIs gain experience in such kind of transactions, and the securitization becomes more popular among local investors, then a Greek SPV should establish and cooperate with FIs to promote securitization in Greece.

As a result, we can see that there is one category of assets that will be securitized by financial institutions in the first instance; this is a category of mortgage loans. But these types of loans are not the only ones that will be securitized. This will happen because all companies will be rated with I.A.S, so that financial institutions can pool loans of companies with the same credit rating and securitize them.

So, as we see, Greek FIs are not ready to undertake such transactions.