Basics

Securitisation and its advantages

From problem to solution – securitisation

Securitisation is the pooling of a portfolio of receivables financed or secured by at least two tranches of debt instruments. Financing can be provided via securities issued on the capital market, via one or more banks or via other specialised investors. Usually, receivables are sold and transferred to a special purpose vehicle (SPV). The SPV finances the purchase of the receivables by issuing securities on the money or capital market. The issuance of various tranches of securities is a defining characteristic of securitisation. In principle, any company or any financial institution can use securitisation products: industrial and commercial enterprises as well as leasing companies and banks.

Advantages for market participants

Industrial and commercial enterprises and leasing companies

Financing independent of the company’s own credit standing
Favourable refinancing terms
Additional liquidity reserves
Diversification of financing instruments
Improvement in financial ratios through balance sheet relief

Banks

Expansion of the investor base
Diversification of refinancing
Partial transfer of credit risks and regulatory equity capital relief
Additional scope in the credit sector for financing the real economy

Investors

Expansion of the investment spectrum in desired asset classes and risk categories
Highly transparent securities with receivable-based cash flows
Increased liquidity through the central bank eligibility of the securities issued and a high level of liquidity in the secondary market

The advantages of securitisation for Germany as a business location

Securitisation is ideally suited to the bank-based corporate financing that is predominant in Germany with its broad SME sector. This is because even larger SMEs often do not have the rating required to access the capital market directly. Smaller SMEs in particular are often ineligible for direct market access.

There are various reasons for this:

Less transparent organisational structures with links to the private and business sectors
Individual business models with specific financing needs
Lack of resources for the reporting and control structures required by the capital markets and for corporate governance.

Securitisation offers an opportunity to link up bank-based corporate financing with the international capital markets. The further development of the securitisation market has the potential to systematically improve the financing capability of the German economy and allow SMEs to participate indirectly in the capital markets.

The advantages of securitisation in the face of current challenges

Securitisation is a frequently used financial instrument in the international context. As part of the EU action plan to create a European capital markets union in 2015, securitisation was the first financial product to be regulated uniformly throughout Europe with a very high level of transparency. According to the European Commission, securitisation is intended to make a substantial contribution to the success of the capital markets union. This trend towards more capital market financing can help to spread corporate risks across a broader base in the German economy.

SMEs and their financing partners are facing enormous challenges

The impact of geopolitical upheavals on global supply and value chains in the short term.
The shift away from the extremely loose monetary policy and the implications for financial market stability will come to the fore in the medium term.
Ensuring adequate financing conditions for the sustainable and digital transformation of the real economy is a longer-term challenge.

The sustainable and digital transformation at company level requires extensive investment and therefore the mobilisation of private capital. As the German economy has to manage the transformation primarily through bank-based corporate financing, regulatory capital relief for the financing banks is particularly important. The further development of the securitisation market must contribute to covering the considerable financing required for the transformation.

In view of the challenges ahead, ensuring appropriate financing conditions for the economy requires the intensive use of various financial instruments, including securitisation.