In 2019, the amount outstanding in Dutch packaged loans, commonly known as securitisations, went down by EUR 6.6 billion (-13.3%) to EUR 43.0 billion. This is the lowest level since 2010. The new rules, under which investors investing in simpler securitisation structures benefit from lower capital requirements have so far not triggered a recovery in this market. At EUR 5.8 billion, issuance was also lower in 2019 than in 2018.
Securitisations involve bundling of loans extended to households and businesses, which are then packaged and sold as bonds through dedicated securitisation firms. In the Netherlands, securitisations serve as a source of funding for residential mortgage loans, especially for banks. They grew sharply from 2000 onwards. Following the outbreak of the credit crisis mid-2007, securitisations were not or hardly sold to other investors, as trust in these products had been compromised.
Outstanding amount hits record low not seen since 2010
Following a rebound in 2018, the outstanding amount of securitisations placed with external investors fell back again in 2019. The volume of Dutch securitisations went up down EUR 6.6 billion (-13.3%) to EUR 43.0 billion in 2019 (see Chart 1). The majority (89%) involve residential mortgage loans.
The amount outstanding is 70% below the peak seen in 2007. Securitisations other than residential mortgage loans have shown the strongest decline since then (-91%). At the time, these were mainly relatively complex structures such as synthetic securitisations, in which credit risks were transferred using derivatives. Nevertheless, more traditionally securitised residential mortgage loans have also fallen quite substantially (-59%).
New rules fail to bring sufficient relief so far
New regulations for simple, transparent and standardised (STS) securitisations were introduced with effect from 1 January 2019 to boost the market for less complex securitisations. Investors meeting specific STS criteria benefit from lower capital requirements. The rules have so far failed to trigger a market recovery, as evidenced by the continued slump.
Causes include attractive funding alternatives, such as issuing covered bonds. Banks issue such bonds with mostly residential mortgage loans as collateral, as a potential alternative to securitisations Between 2007 and 2019, the value of covered bonds held by external investors increased sixfold from EUR 15.1 billion to EUR 85.7 billion. The 2019 increase amounted to EUR 6.9 billion (+8.8%).
In addition, so-called regiepartijen have since 2014 entered the market. They grant and manage mortgage loans on behalf of investors. Using their services, pension funds and insurers have increasingly invested directly in mortgage loans to benefit from higher returns and reduce mismatches with their longer-term liabilities.
Lowest issuance volumes seen in the past 10 years
Securitisations were lower mainly due to lower issuance volumes. In 2019, securitisations to the total of EUR 5.8 billion were placed with external investors through Dutch securitisation firms. This was EUR 3.3 billion (-36%) below 2018 and the lowest volume observed since the securitisations market came back to life in 2010 in the wake of the financial crisis (see Chart 2).
Issuance was supported by relatively new mortgage providers, including several coordinating parties which ultimately fund mortgage labels through securitisations. They accounted for EUR 1.0 billion, which does not include EUR 0.6 billion in issuance through foreign firms.