Wednesday, March 3, 2010

Association of German Banks unveils standard for securitisations

In Berlin today the Association of German Banks unveiled a new standard for German SME securitisations. “Our goal is to revitalise the securitisation market, where investor confidence was largely lost as a result of the financial crisis,” announced Markus Becker-Melching, Managing Director for Competition and SME Policy. “The primary objective is to support the funding of SMEs.” Securitisation was an important tool for the banks, he said, enabling them to free up capital and create scope for lending.

The securitisation market in Germany has been at a virtual standstill for the last two years. “There's actually no justification for the loss of confidence in German securitisations, especially securitisations of SME loans, where losses were far lower than expected even during the crisis. Securitisation nevertheless tends to be viewed with distrust; the new standards are intended to counteract this perception.” The underlying principle of the standards is that securitised loans should have a high level of transparency and quality. This means no resecuritisations, for instance. In addition, securitisation will only be permitted if the loan has been on the bank's balance sheet for at least one year or if the bank retains a portion of the loan. There would be no non-performing loans in this premium segment, stressed Becker-Melching, or loans that did not reflect the other lending operations of the bank in question. Thanks to the high standard of transparency, moreover, investors would know exactly what they were investing in without having to rely on external credit ratings.

The new standards were handed over in Berlin today to the securitisation platform True Sale International GmbH (TSI). “TSI has the expertise and resources to establish this premium standard on the market in collaboration with all sectors of the banking industry and thus to ensure sustained high quality,” Becker-Melching continued. The Association of German Banks had also talked to potential investors during the development phase: “Our premium standard represents an important step forward. Time will tell whether this is enough to revitalise the market.”

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