New securitisations, but amount outstanding declines
During 2012, (external) investors bought EUR 13.1 billion of packaged loans, mainly residential mortgage loans, via securitisations of financial institutions based in the Netherlands. A further EUR 41 billion was securitised for liquidity purposes, with the securities held by the issuing banks. Despite these sizeable new securitisations, the amount of securitisations outstanding continued to decline in 2012, by 7.7% to EUR 293 billion.
Securitisations involve the bundling of loan assets, especially bank loans to households and businesses, which are then packaged and sold as marketable securities. Securisations are an additional source of funding for banks. In the years following the outbreak of the credit crisis (in mid-2007), such loans-packaged-into-bonds were infrequently sold to external investors (hereafter: 'external securitisations'), as trust in securitised products had been compromised. Securitisation during this period took place mainly for liquidity purposes. Such 'internal' securitisations are not sold on the market but held by the originators as investments for use as collateral in obtaining liquidity from central banks or on the commercial market should the need arise.
From late 2009 onwards, external investors showed renewed interest in securitisations, even though fewer investors could be found than before the crisis. In order to broaden the investor base, one securitisation carried out in the Netherlands during 2012 was denominated mainly in US dollars and complied with 'US Rule 144a' requirements (note 1). In all, EUR 13.1 billion worth of Dutch securitisations was placed with external investors in 2012, EUR 11.8 billion of which was in packaged residential mortgage loans(note 2). This marked a 6.6% rise compared to 2011, although the volume was still only slightly more than half that of 2010 (Chart 1).
This development partly reflected the impact of the debt crisis on the capital market. For another part, it reflected uncertainy about the future treatment of securitisations under various regulatory regimes. This concerns the question whether securitisations may be counted towards banks' liquidity buffers (in the context of legislation under Basel III and CRD IV), and the possibility of higher capital requirements in respect of investments in securitisations for insurers (under Solvency II) and banks (under the new Basel securitisation framework). Furthermore, it should be noted that 'covered bonds' may to some extent offer an alternative to securitisations.
Apart from external securitisations, the Netherlands saw substantial internal securitisations in 2012 (of EUR 41 billion), but these were mainly intended to roll over maturing securitisations.
Decline of outstanding securitisations
The net outstanding amount in securitisations came down by EUR 25 billion, or 7.7%, to EUR 293 billion, as redemptions of existing securitisations exceeded new issuance. This decline was observed in both internal and external securitisations. External securitisations decreased by EUR 13 billion or 12% in 2012, to EUR 95 billion. Compared to the maximum attained in 2007, the overall volume has declined by almost one-third. Internal securitisations declined by EUR 11 billion or 6% in 2012. As a result, external securitisations make up just onder one-third of total outstanding securitisations.
The decline occurred in both residential mortgage securitisations and the other securitisations. The decline was especially strong in the other securitisations (over one-third less, down to EUR 18 billion), mostly on account of synthetic securitisations. In this latter category, unlike in traditional securitisations, the securitised claims remain on the balance sheet of the original lender (usually a bank). Only the credit risk on the loans is transferred, through credit derivatives. In 2012, the outstanding volume of synthetic securitisations, which at end-2009 had been as high as EUR 31.2 billion, decreased by EUR 10.4 billion to EUR 0.6 billion (Chart 3). Recent years have seen many redemptions, while new synthetic securitisations were carried out only sporadically. Investors had lost almost all interest in this more complex form of securitisation, while the suppliers (usually banks) switched to simpler, more transparent securitisation products.
As a result of these developments, almost 95% of the outstanding securitisations (EUR 275 billion) related to residential mortgage loans, whereas in 2006 the share had been less than 70%. Over 70% is in internal securitisations (EUR 195 billion). At year-end 2012, external investors held EUR 80 billion worth of securitised residential mortgage loans, 3% less than at end-2011, and 15% less than at the peak of EUR 94 reached in 2007. Of total outstanding residential mortgage loans, the share was 12%, compared to 17% in 2007 (Chart 4).
Three-fourths of current external residential mortgage securitisations (about EUR 60 billion) have been originated by Dutch banks (including non-banking subsidiaries). The rest (some EUR 20 billion) have been originated by other mortgage lenders, including insurers.
Note 1: Qualifying investors may trade such securities among one another without registration or holding requirements.
Note 2: Dutch securitisations, here, should be read as securitisations executed through Dutch-based so-called Special Purpose Vehicles (SPVs), and valued according to the debt securities issued by the SPVs.