Fewer securitisations in 2014, but institutional investment in securitisations increased
In 2014, external investors bought EUR 10.3 billion worth of packaged loans via new securitisations issued by financial institutions based in the Netherlands (down 32% on 2013). The total amount outstanding in such external securitisations in 2014 fell 5% to EUR 74 billion. Dutch institutional investors in 2014 expanded their holdings of Dutch securitisations by EUR 1.1 billion (up 23%). The increase was largely concentrated with a small number of investors.
Securitisations involve bundling of loan assets, especially bank loans to households and businesses, which are then packaged and sold as marketable securities (via Special Purpose Vehicles). Securitisations constitute an additional source of funding for banks. In the years following the outbreak of the credit crisis (mid-2007), such loans packaged into bonds were not or hardly sold to external investors, as trust in securitised products had been compromised. Consequently, few of these external (non-retained) securitisations were effectuated during these years, but a large number of internal (retained) securitisations did take place. Banks do not sell these internal securitisations on to the market, but hold on to them principally for use as collateral in obtaining liquidity from central banks in particular. As such, these internal securitisations enable banks to raise funding indirectly.
External investors' appetite for securitisations has picked up again since the end of 2009, although the number of investors has fallen since the outbreak of the crisis and securitisations are placed on the private market more often.
Fewer issues of securitisations
In 2014 Dutch securitisations to the total of EUR 10.3 billion were sold to external investors. This represents a EUR 5.0 billion (32%) drop on 2013 (see Chart 1) and a 40% drop on the annual average since 2010. For securitisations of residential mortgages, external placements totalled EUR 9.2 billion, EUR 6 billion (40%) lower than in 2013. This is related to several developments. The uncertainty about future regulations for banks and insurance companies and the possibility of more stringent requirements may make the securitisation market less attractive to investors. New issues of securitisations have also declined owing to the favourable funding terms prevailing on the financial markets, which in turn are partly attributable to the accommodating financing facilities offered by central banks. The fragile macroeconomic environment and weak credit growth were also contributing towards lower funding requirements.
In addition to these external securitisations, internal securitisations in the Netherlands in 2014 totalled EUR 15.1 billion, EUR 8.9 billion (37%) less than in 2013. These mostly served as replacements for maturing internal securitisations.
Chart 1 - Issueof Dutch securitisations according to type/placement
Outstanding amounts of securitisations also drops
As more securitisations matured than were newly issued on balance, the total amount in securitisations outstanding in 2014 declined by EUR 10.6 billion to EUR 255.5 billion (down 4%) (see Chart 2). A decline was observed in both external and internal securitisations. The volume of external securitisations shrank by EUR 3.9 billion to EUR 74.2 billion (down 5%), the majority of which concerned residential mortgage securitisations, which dropped by EUR 4.3 billion to EUR 70.5 billion (down 5.8%). Internal securitisations outstanding declined by EUR 6.7 billion to EUR 181.2 billion (down 3.6%).
This means that the volume of outstanding external securitisations dropped to about half the level observed in mid-2007, when the credit crisis broke out. Although the volume of outstanding residential mortgage securitisations also declined substantially by EUR 22 billion (24%), the most dramatic falls were observed in other securitisations, which were down EUR 42 billion (92%). The latter mainly consist of synthetic securitisations. These are structured transactions in which credit risk is transferred to third parties by means of credit derivatives. The fall reflects investors' waning appetite for more complex and less transparent securitisations since the start of the crisis.
Chart 2 - Dutch securitisations outstanding according to type/placement
Securitisation holdings of Dutch institutional investors increased, but the rise was not observed across the board
Dutch insurance companies, pension funds and investment funds on balance invested EUR 1.1 billion in Dutch securitisations in 2014, lifting total holdings by 23% to EUR 5.7 billion (see Chart 3; holdings of investment funds indirectly represent investments made by pension funds in particular). This lifted the proportion of investments made by institutional investors in external securitisations to 7.6% from 5.9%. That said, the increase did not occur across the board, but was mainly concentrated with a small number of institutional investors.
The lion's share (two-thirds) of Dutch securitisations is being held by Dutch banks based on the ever substantial volume of outstanding internal securitisations. This brings the amount of Dutch securitisations held by banks (i.e. the domestic banking sector, known as monetary-financial institutions) to EUR 168 billion. These holdings have, however, fallen substantially over the past few years, due to the decline in the amounts outstanding in internal securitisations.
Other institutions in the Netherlands hold securitisations to the equivalent of EUR 8 billion. These holdings primarily concern internal securitisations of (non-domestic and domestic) banks in the possession of Dutch subsidiaries. The remainder is held by non-domestic entities. This means that EUR 74 billion, almost 30%, of all Dutch securitisations was placed abroad.
Chart 3 - Investors in Dutch securitisations by NL sector and abroad
(Amounts outstanding in EUR billion at year-end)