European Non-Performing Loan Securitisations: Development of a New Asset Class

Financial Investigator
By February 5, 2019 13:07

European Non-Performing Loan Securitisations: Development of a New Asset Class

Securitisation markets are not new to the use of non-performing loans (NPLs) as collateral, evidenced by the U.S. savings and loan crisis, the Asian crisis and recent European troubles. Securitisation provides a method for banks to remove bad loans from their balance sheets and shore up the financial system. The use of securitisation for NPLs is now spreading across Europe to help improve the banking system. Plans are in place to establish a method to improve the management of NPLs in Europe with progress on the European Commission’s action plan, first introduced in 2017. Prior to this, Italian banks were in a difficult position with high levels of NPLs on their balance sheets alongside the introduction of state-aid rules, preventing the establishment of bad banks. As a result, Italy targeted the securitisation market to address its NPL crisis. The introduction of the Garanzia Cartolarizzazione Sofferenze (GACS) allowed banks to securitise potfolios with the provision of a guarantee on the senior tranche. This guarantee has helped Italian banks to issue 19 transactions since 2016. On the back of Italian NPL securitisations, transactions have also been completed with portfolios from Ireland and Portugal. With this prospect of new transactions, other regions such as Spain and Greece are now looking to the securitisation market. 

Financial Investigator
By February 5, 2019 13:07

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