ESMA has analysed the European securitisation market. The analysis focuses mainly on Public ABS issued since the introduction of the Securitisation Regulation in 2019; “UK securitisations” are not taken into account. ESMA is well-aware that a generalisation of results of their analysis is rather limited due to this technically detailed consideration of a specific segment and limited time period. For example, a consideration of transactions issued before 2019 as well as the Private/ABCP segment could lead to a more comprehensive picture of the current market situation, see also the latest report of the European Benchmark Exercise (“EBE”; see TSI kompakt article of 20 September 2023).
Limited value of conclusions on market development
The analysis of the Public ABS market in Europe may benefit from extending its scope:
- Other market analysis, as for example the AFME Securitisation Data Reports, conclude that the overall public market does not grow
- The evaluation of the issuers’ countries of origin is questionable, as mainly non-risk-relevant aspects, such as neutral tax treatment, are considered when choosing the SPV location.
- The high concentration of securitisations in the top 5 originator countries rather reflects the sizes of the economies and is a consequence of high costs of regulation for issuers in smaller markets (see also the recently published final report on the German Securitisation Platform).
- The high variation in transaction volumes is not really surprising and has no significance with regard to the risk assessment of the market.
- The analysis of the default rates of the underlying exposures is not meaningful due to the short time period of the analysis (including one-off effects such as the corona pandemic or the Ukrainian war).
Evaluation of STS securitisations leads in part to inaccurate conclusions
In a second part of the market analysis, ESMA switches from the public overall market to the STS segment – now taking into account the Private/ABCP and Synthetic segments. Due to a lack of data, the analysis switches from market volume to number of transactions, and conclusions do not consider data from the EBE European Benchmark Exercise:
- In its report, ESMA describes non-STS securitisations as “more complex, opaque and risky investments”. However, STS-criteria are not related to the risk assessment of transactions. When transactions do not comply with STS in practice, reasons often are the high costs associated withthe restrictive STS criteria. There is no evidence that default rates for non-STS securitisations are higher than for of STS-securitisations.
- The report records a sharp decline in STS securitisations since 2020, which in fact is a decline of STS notification. In practice, the EUR volume of STS transactions as well STS in percentage of the market volume is continuously growing see the latest EBE report, which shows a more comprehensive view on the private STS market.
- The observed market growth of synthetic securitisations is in line with the ECB’s latest figures (see TSI kompact article of 31 August 2023). However, this does not necessarily apply to STS securitisations: The new draft RTS on homogeneity will most likely lead to mixed portfolios with SME and large corporate loans becoming non-eligible under STS. In addition, a trend towards non-STS securitisations can be observed in synthetic securitisations, as reinsurers are again increasingly appearing as investors. Since they are not regulated by CRR, reinsurers do not achieve any relief with regard to their capital requirements through STS. Again, this does not mean an increase in the complexity and risk of these transactions.
Conclusion
ESMA’s analysis could have benefited from an exchange with market participants and consideration of other sources of data. Due to its limited data basis, the analysis paints an incomplete picture of the European securitisation market.