СЕКЬЮРИТИЗАЦИЯ КРЕДИТОВ КАК ИНСТРУМЕНТ ПРИВЛЕЧЕНИЯ «ДЛИННЫХ ДЕНЕГ» В БАНКОВСКИЙ СЕКТОР ЭКОНОМИКИ РОССИИ

Некрасова И.В.¹, Никитенко А.С.²

¹ Кандидат экономических наук, доцент ² Студентка 4 курса бакалавриата экономического факультета Южного федерального университета

СЕКЬЮРИТИЗАЦИЯ КРЕДИТОВ КАК ИНСТРУМЕНТ ПРИВЛЕЧЕНИЯ «ДЛИННЫХ ДЕНЕГ» В БАНКОВСКИЙ СЕКТОР ЭКОНОМИКИ РОССИИ

Аннотация

В статье представлен сравнительный анализ моделей традиционной и синтетической моделей секьюритизации, раскрываются основные преимущества модели секьюритизации ипотечных кредитов, применяющейся в большинстве европейских стран, и анализируется современная структура рынка секьюритизации в Европе и Америке.

Авторы обосновывают актуальность секьюритизации кредитов малому и среднему бизнесу (МСБ). В статье осуществлена периодизация развития российского рынка секьюритизации и сделаны рекомендации по улучшению его функционирования.

Ключевые слова: рынок секьюритизации, специально созданное юридическое лицо, ипотечные кредиты, кредиты малому и среднему бизнесу, Агентство ипотечного кредитования, традиционная модель секьюритизации, пул финансовых активов, оргинатор.

 

Nekrasova I.V.¹, Nikitenko A.S.²

¹ PhD in Economics, associate professor, ² 4th year bachelor of economics, Southern Federal University

SECURITIZATION OF LOANS AS A TOOL TO ATTRACT “LONG MONEY” IN THE BANKING SECTOR OF THE RUSSIAN ECONOMY

Abstract

The article presents a comparative analysis of true-sale securitization and synthetic securitization models, reveals the main advantages of the model of securitization of mortgage loans, which is common in most European countries and analyzes current structure of the securitization market in Europe and America.

The authors substantiate the actuality of lending to small and medium-sized enterprises (SMEs) in the form of securitization debts in Russia.

The article presents the periods of development of the Russian securitization market and recommendations for its improvement.

Keywords: securitization market, Special Purpose Vehicle, mortgage loans, Small and Medium Enterprises Loans, Agency for Mortgage Lending, true-sale securitization, pool of financial assets, originator.

Russian economy reached the peak of its recession in June 2015. Following the results of this year analysts expect GDP to decrease at an annual rate of 3.6%. Noticeable slowdown on the lending market reflects current currency crisis and slowdown of economic activity of business and population. For the first four months of 2015 past-due debt rate in retail lending made 6.5%, whose increase at a quarter rate of 0.9% became a record since the beginning of past-due debt monitoring in 2010. Mortgage portfolio is also a subject of considerable problems: by May 2015 Russian banks reduced mortgage lending 33.45%. Following the results of first five months of the year, past-due debt rate in mortgage lending made 13.1%, which is five times higher than in 2014. [1]

At present, the Russian banking system is going through a massive and dangerous transformation: transition of major depositors and corporate clients to the state banks, lack of reserves for future credit activity.

The reason of such situation is widely known: on the Russian financial market there is no cheap and “long-term” liquidity in spite of permanent download additional liquidity by the central bank to the bank system.

However, this liquidity is obtained by a few dozen financial institutions only. In such situation, bank may rely only on its own strength and use the tools of funding. Securitization of loans is one of such tools for the Russian market.

The scope of securitization transactions in 2012 amounted to 68 billion rubles, or about 6.7% of all issued mortgage loans. In 2013, this amount was overcome in the first nine months of the year. Total year-end securitization accounted to 11% of all issued mortgage loans; approximately 144 billion rubles of loans were refinanced. In 2014 the scope of securitization amounted to 252.8 billion rubles with 14.5% of mortgage loans being refinanced. Securitization forecast for 2015 is 250 billion rubles; such decrease can be connected with current reduction on mortgage lending market. [2]

In the first quarter of 2015 on the Russian mortgage market took place six issues and six placements of mortgage-backed bonds. Among the latest (November 2015) news is approval of a bill, which is going to simplify procedure for issue of mortgage securities, reduce terms of issue from 40 to 5 weeks and lower the cost of the attracted resources. Therefore, the securitization of loans in Russia is very actual theme.

The classical scheme of mortgage assets securitization consists of the following steps.

1. The Bank (originator) gives loans to borrowers, and receives mortgage loans, as collateral. Rights of requirements of mortgage loans are sold by the bank to the special purpose vehicle (SPV).
2. SPV issues securities (mortgage bonds) which are collateralized by the right of claim on mortgage loans. Investors buy these securities and pay fund to SPV for them.
3. SPV pays cash, received from investors after issuing securities, to originator, thus paying for acquired right to claim.
4. Originator is serviced the securitized assets and if it necessary, provides a collection of debts through the court. Functions related to servicing of debts could also be carried out other person, which called servicer.
5. Cash generated by the originator from the borrowers is transferred to the SPV for investors.
6. SPV within the prescribed period shall pay investors interest on mortgage bonds and the principal amount. The realization of the securitization of assets through the special purpose vehicle (SPV) allows separating the assets, which provide payments on securities purchased by investors for risk diversification. [3,41]

This model of securitization originated and became most prevalent in countries with Anglo-Saxon type of economy, that’s why this model is called American (or real) securitization model.

It should be noted that under classical securitization, bank transfers the credit claims from its balance sheet to the balance of SPV, transfers all credit risk to others entity, which allows him to avoid of Central Bank restriction.

According to the synthetic securitization all risk is transferred step by step, as the sale of securities.

Securitization, presupposing real sale of assets, became successful on international financial markets. However in some countries, there are legislative and legal difficulties or limitations which do not allow banks to use that method of financing. European countries are among those, who face with this problem.

Synthetic securitization assets appeared in the 1990s. The main reasons of emerging of synthetic securitization assets are not only restrictions which do not allow to use the American (or real) securitization model, but also the active development of the credit derivatives market.

During synthetic securitization assets remain on the balance sheet of the originator - the bank or enterprise. So they become a means to ensure of securities.

Thus, synthetic securitization was formed as a result of the usage of transaction credit derivatives and became an innovative technique in financial markets.

Credit derivatives are financial instruments on which the protection seller makes a payment to the protection buyer in the case of a risk event. The most popular credit derivatives, which are used in the structure of the transaction of synthetic securitization, are credit note, credit default swap, swap on the comprehensive income and others.

The basis of the synthetic securitization is a mechanism by which securitized asset is not sold, but remains on the bank's balance sheet, while the risks associated with this assets are transferred to the market.

Securitization opens access to almost all the resources of domestic and international financial markets for businesses and banks and solves the task of reducing the cost of borrowing. For investors, securitization means development of new instruments, which provide access to a high level of market relations, fundamentally new possibilities risk management. [4,17]

American mortgage crisis and the subsequent financial the crisis of liquidity have increased the practicians’ and scientists’ interest in practical application of securitization.

It is important to consider the main advantages of the German mortgage securitization model. This model is generally accepted in most European countries. Among its’ advantages are:

• system openness - all mortgage lending institutions may participate in the securitization on an equal basis;
• risks and performing of service functions belong to the mortgage credit institutions;
• principle of equilibrium in the Danish mode, according to which mortgage is financed through the issuance of standardized bonds, producing a large-scale and liquid market (in contrast to the asymmetric model of the American mortgage system).

Securitization allows the homeowner to repay the mortgage loan not only due to money, but also by bonds with the same nominal value at market prices.

As the cost of housing and associated with it mortgage bonds usually change in the same direction, homeowners don’t face with negative difference between the collateral and the market value of their property. In other words, if the housing prices fall, then the sum which the homeowner should spend on mortgage payments is reduced, because the homeowner can repay it by purchasing bonds at a lower price.

With a share of mortgages of 1% in GDP Russia lags behind not only developed countries but also the countries of Eastern Europe, Baltic States and Kazakhstan, which focus on the European model of securitization.

Mortgage financing in Russia is carried out mainly by means of the banking system. In our opinion it is ineffective, giving mortgage low capitalization and limiting access to long-term financial resources.

Securitization of mortgages in Russia was introduced by the Mortgage Securities Federal Law based on the American model of securitization.

In Russia, as well as in the United States scheme of securitization consists of two levels. On the first level loan is given to the borrower in a mortgage bank and pools of mortgage loans are formed. On the second level specialized mortgage companies issue securities into circulation on the stock market. [5, 26]

In the United States these specialized companies are represented by Federal National Mortgage Association Fannie Mae (FNMA); Government National Mortgage Association Ginnie Mae (GNMA); Federal Home Loan Mortgage Corporation Freddie Mac (FHLMC). Russian equivalent of the American Mortgage Association Ginnie Mae is the Housing Mortgage Lending Agency (HMLA).

HMLA buys back mortgage, secured by loan from the bank that issued a mortgage loan. After the sale of the mortgage, its owner becomes a regional operator of HMLA (servicer) and the bank has no relation to this mortgage and its service. Regional operator collects and services the purchased loans from the HMLA. Funds that the agency sends to the regional operators for the redemption of mortgage come from the issuance of corporate bonds HMLA and also from its share capital. All payoffs on agencies corporate bonds are guaranteed by the Russian Finance Ministry. Risks are fully covered by the state budget.

Today, the growth of the securitization market in Russia is caused by the following reasons.

First of all, banks issuing mortgages began to pay more attention to the securitization market as a potential source of borrowing.

Secondly, today the regulation is constructed in such a way that if mortgage loan portfolio is transformed into the mortgage-backed security, bank leverage is reduced. Besides, bank may redeem mortgage bonds instead of the loan portfolio to use it in repos with the Bank of Russia.

This mechanism is actively used abroad. Last year, about half of the transactions on the issue of European mortgage-backed securities were made in order to refinance in the European Central Bank. We apply this scheme to a lesser extent; it is available only to credit institutions of the Top-30.

The analysis showed that the Russian securitization market passed the following stages of development.

1. Pre-crisis period (2006-2007 years), period of euphoria when these securities were bought mostly by foreign investors.
2. Crisis period (2008-2009), the securitization market was almost "dead".
3. Post-crisis period (2010-2012), securitization market gradually began to recover. The mortgage-backed securities were placed with difficulty. HMLA was basically single on the market. And large proportion of mortgage-backed securities redeemed by the Bank for Foreign Economic Development (VEB), who is manger of the funded part of the pension fund.
4. Fourth period, from 2013 to the present. The specificity of this period is that foreigners almost do not buy mortgage-backed securities in Russia. On the contrary, Russian investors and non-state pension funds have become more active. In 2014 the share of HMLA in issue of mortgage-backed securities was 10%, in comparison the share in 2013 was about 40% and more than 60%in 2012. Thus the tendency in HMLA’s share decrease is obvious and it can be considered as a positive trend.

Major prerequisite for the development of the securitization market in Russia was adoption of the Law № 379-FZ "On Amendments to Certain Legislative Acts of the Russian Federation" (“Securitization law”). It came into force on 1 July 2014, but for its application in practice, it is necessary for the Central Bank to adopt a number of by-laws. [2]

New law allows securitizing portfolio of any homogeneous assets: consumer loans to small and medium-sized businesses, auto-loans. But there raises the problem of assessing the homogeneity of the portfolio and future cash flows, as well as risks associated with work in this segment. Another point is that with the creation of Russian Special Purpose Vehicle (SPV) appeared an opportunity for implementation of internal securitization transactions.

Now the securitization of mortgage assets is held mainly through foreign SPVs (SPVs are special companies, in favor of which the banks write off assets from the balance sheets; then these companies issue of mortgage-backed securities).

Today it is difficult to determine whether Russian equivalent of the foreign SPVs will be needed and work efficiently during securitization.

The modern structure of the securitization market objects in Europe and America is represented by mortgage and asset securities - ABS (Asset Backed Security).

Broadly speaking ABS is a security backed by any financial assets, such as loans, lease payments, secured and unsecured requirements, mortgages and financial obligations to repay debt in several payments.

We can distinguish the following main types of ABS.

1. Mortgage Securities (MS) - the general name of securities backed by mortgages. They are divided into the following subtypes:

- Mortgage covered bonds (Mortgage Bond, Covered Bonds) - are bonds secured as collateral mortgage loans or mortgages on the balance sheet of the issuer. To protect investors, the value of collateral is regularly checked and updated if necessary, so that it is enough to pay the face value and current interest on the bonds.

Interest payments on mortgage bonds are paid semi-annually and the face value is repaid at the end of maturity. The dates of redemption and interest payment of such bonds are known in advance.

- Mortgage Backed Securities, MBS - are securities, which payments match with the cash flows from a pool of mortgage loans, subtract service commission and guarantees for them. The most important feature of the MBS is that after its issue a pool of mortgage loans "leaves" the issuer's balance sheet.

Mortgage Backed Securities may be issued following the market participants:

• Directly by the bank based on its portfolio of mortgage loans with the participation of "Ginnie Mae" as a state organization providing government guarantees of the United States. The securities, guaranteed by «Ginnie Mae», are assessed as a risk-free (in terms of credit risk).
• Specialized Mortgage Funds on the basis of mortgage loans, purchased from the creditor banks, with the participation of such organizations as "Fannie Mae" or "Freddie Mac" that provide their own MBS warranties. Securities guaranteed by "Fannie Mae" and "Freddie Mac" are called Agency securities (or Agency Pass-Throughs).

Agency securities differ from the mortgage bonds. For example, the exact period to maturity of Agency securities isn’t known in advance, because the borrower has the possibility of early repayment of the loan at any time and any parts. Thus, the final investor takes the prepayment risk of mortgage loans.

Prepayment risk is the risk of reducing the profitability of investments due to the fact that part or fully invested amount will be paid before the deadline.

In Russia MBS is issued by HMLA, which is similar to American "Ginnie Mae."

- Mortgage participation certificates (or Mortgage Pass–Through Certificate) - is registered securities certifying the owner's share of the possession of a pool of mortgage loans. Mortgage participation certificate has no face value. Mortgage Pass–Through Certificate on the securities market may not be used for the issue of derivative securities. Unlike mortgage bonds for which the face value is redeemed at maturity, mortgage participation certificates are paid monthly as interest and amortization payments on the principal amount (excluding service fee pool).

In Russia, mortgage participation certificates in recent years become very popular among institutional investors, among which are management companies of mutual funds.

2. Residential Mortgage Backed Securities (RMBS) - are securities backed by mortgages, which are mainly issued in Netherlands and the UK.

In Russia RMBS are being issued since 2006, when the first cross-border transactions were held. Term "cross-border issues" is used for foreign issuers of Residential Mortgage Backed Securities.

3. Commercial Mortgage Backed Securities (CMBS) - this securities are provided by commercial real estate. Since these mortgage-backed securities are not standardized there are many details associated with their use which makes their value difficult to assess.

Commercial Mortgage Backed Securities are less subject to prepayment risk, as commercial mortgages are usually mounted on a certain date.

4. ABS in the narrow sense of the word - are securities backed by auto loans and Small and Medium Enterprises Loans (SMEs).

In Europe segment of securities backed by SMEs loans are greatly supported by public policies in countries such as Spain and Germany.

This segment of securitization market is very relevant for Russia as well as refinancing of small and medium-sized businesses is vital to the economy of any country in the period of macroeconomic instability.

Therefore, Russia needs to develop special government programs to encourage the issue of securities backed by SMEs loans.

Securitization of SME loans allows us to supplement the existing direct lending by the two-level scheme and  it has the following advantages:

• Allows to turn illiquid portfolio of loans for small and medium-sized businesses in the bank's balance sheet into liquid securities with a high rating, with low-risk that fulfill the criteria to be included in the Lombard List of the Central Bank of the Russian Federation;
• Allows to bring in SME lending investors' funds, not related with SMEs and with lending in general (pension funds, insurance companies, management companies of mutual funds and private investment);
• Allows partner banks to release capital through the sale of the loan portfolio to SPV - issuer of covered bonds, whereby the bank may increase the volume of lending to SMEs.

Thus, it is necessary to develop standards for lending of small and medium-sized businesses in Russia. These standards will help banks to form portfolios of homogeneous loans for subsequent securitization, make loans cheaper and attract long-term money.

References

1. Official site of National Bureau of Credit History //www.nbki.ru
2. Official Site AHML // www.ahml.ru
3. Baer Kh.P. Asset Securitization: securitization of financial assets - innovative technology financing banks / Translation from German. M.: Wolters Kluwer. - 2007. – P. 624.
4. Kharitonchik A.I. Synthetic securitization as an innovative method of credit risk management // Problems and prospects of Economics and Management: materials of the International Scientific Conference (St. Petersburg, April 2012 г.). - SPb.: Renome. - 2012. - P. 115-117.
5. Kozak S., Teplova O. Securitization as a tool of liquidity and stability management in financial institutions in the period of crisis: the case of Germany and Russia // Scientiarum Polonorum ACTA, Oeconomia 9 (3) 2010. –P. 181-195.