Dutch banks and foreign investors largest holders of Dutch securitisations
Outstanding Dutch securitisations decreased by 4.4% in 2011, to EUR 317 billion, despite substantial new packages of loans by Dutch financial institutions. Two-thirds of Dutch-issued securitisations are held by Dutch banks, mainly for liquidity reasons. Foreign investors are estimated to hold 30%. Thus foreign investors fund some 13% of Dutch residential mortgage loans.
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. After the eruption of the credit crisis in mid-2007, issuers had difficulty in placing such packaged loans, in the form of bonds, with external investors (hereafter referred to as ‘external securitisations’) because trust in securitised products, even those based on high-quality assets, had been eroded. Securitisations continued to be issued in more recent years, but mainly for liquidity purposes. Such securitisations are not sold on the market but held by the issuers as investments (hereafter referred to as ‘internal securitisations’) for use as collateral in obtaining liquidity from central banks or the commercial market should the need arise. Also, banks may hold (parts of) their own securitisations as a result of retained ‘first loss’ positions or buyback transactions.
Sizeable new securitisation issuance, yet amount outstanding declines
From late 2009, demand for securitisations from external investors picked up again, although the number of takers has remained below pre-crisis levels. 2011 saw EUR 12.3 billion worth of Dutch-issued securitisations (mainly residential mortgages-based) sold to external investors, just over half the amount recorded in 2010 (Chart 1). This was partly due to the impact of the debt crisis on the capital market and (the anticipation of) the new Basel 3 regulations under which securitisations may no longer be counted towards banks' liquidity buffers. This latter effect may also explain the recent decline in maturity. Investors show a clear preference for 2–5-year tranches.
In addition, there were sizeable internal securitisations in the Netherlands for an amount of EUR 74.5 billion. The resulting total issuance of Dutch securitisations in 2011 thus reached the third-highest amount ever (Chart 1). However, the net outstanding amount came down by EUR 14.6 billion or 4.4%, to EUR 317 billion (Chart 2), as redemptions of existing securitisations exceedded new issuance. In part, this may be ascribed to restructuring, where especially internal, securitisations were converted into new ones. And then, of course, there was the regular maturing of securitisation programmes. The decline of the outstanding volume was observed in both external and internal securitisations. External securitisations have contracted by 23% from their maximum reached in 2007 (EUR 141 billion) to EUR 108 billion at end-2011 (that year: -9.3%) or one-third of total outstanding Dutch-issued securitisations.
External residential mortgage-based securitisations saw a slight resurgence in 2010, but by end-2011 the amount outstanding, at EUR 83 billion, was 12% below the 2007 level (-3% in 2011). Most of the the decrease in other securitisations outstanding contributed to the decline in external securitisations. Since 2006, the volume of such securitisations has dropped by almost half, to EUR 25 billion (2011: ‑26%). This category includes synthetic securitisations, where instead of the assets themselves, only the credit risk on the assets is transferred, in the form of credit derivatives.
Outstanding internal securitisations, which are mainly residential mortgage-based, also slightly declined in 2011 (-1.7%). However, compared to the onset of the credit crisis, however, their volume was still multiplied tenfold to EUR 209 billion at end-2011.
As a result of all these developments, 90% of Dutch-issued securitisations at end-2011 related to residential mortgage loans.
Securitisations largely held by Dutch banks and foreign investors
The substantial size of the internal securitisations held by Dutch banks already suggests that banks are also the principal investors in Dutch-issued securitisations. At end-2011, Dutch banks (that is, the domestic banking operations referred to also as Monetary Financial Institutions) held EUR 210.5 billion worth of Dutch securitisations, or two-thirds of the total (Charts 3 and 4).
Other Dutch institutions hold almost 4% (EUR 11.7 billion) worth of Dutch securitisations, with insurers investing EUR 2.9 billion and pension funds EUR 1.5 billion. In addition, they are also indirectly exposed to Dutch securitisations, via Dutch investment funds. This is because the EUR 1.9 billion worth held by investment funds can be largely attributed to Dutch insurers and pension funds. Finally, EUR 5.4 billion worth is held by other institutions in the Netherlands, mainly in the form of internal securitisations issued by (foreign and domestic) banks and held by Dutch subsidiaries.
Foreign investors are estimated to hold EUR 95 billion worth or 30% of Dutch-issued securitisations, which means they account for almost 80% of external securitisations holdings. Since 90% of securitisations is based on residential mortgage loans, the above implies that foreign investors fund a substantial share (some 13%) of Dutch residential mortgage loans by purchasing Dutch-issued securitisations.