A rebound in securitisation of loans to small and medium enterprises in Europe is to be expected, after the sharp decline in the last few years. As for ABS performance, they will be as good as they have been till now. This is what Mooyd’s writes in a recent report (download here Moody’s report) where the agency explains that throughout the crisis, European ABS SMEs issuance volumes have ebbed and flowed in parallel with those of other ABS securities, which experienced a sharp decline over the past three years.
Between 2012 and 2013, ABS SME issuance levels even decreased faster than those of the overall ABS market. In addition, for the overall European securitization market in 2013, the volume of issuance that was retained (EUR 104.5 billion) continued to exceed that placed with investors (EUR 76.4 billion). European SME ABS volumes seem low as a proportion of the total lending to non-financial firms (less than 3%) when compared with RMBS volumes as a proportion of total residential lending (approximately 22%).
Spain and Italy dominate the European ABS SME market, especially if looking at the number of transactions. There have been larger but fewer Dutch and Belgium ABS SME transactions.
As for Italy, Moody’s thinks that the new measures that the Italian Government introduced last June will have a great positive impact on current SMEs ABS deals as there will be a more favourable envirnoment via the provision of an increase in funding and a related decrease in refinancing risk (download here the Moody’s report).
Actually with the introduction of Law Decree 24 June 2014 no. 91, Italian companies will now have access to an additional source of financing, which is credit positive for Italian SMEs because it mitigates refinancing risk. The decree allows Italian securitisation special purpose vehicles (SPVs), insurance companies and closed-end investment funds to provide finance directly to borrowers provided certain conditions are met.
Before the decree was converted into law on 11 August 2014, Italian SPVs could purchase SME loans originated by financial institutions, but could not grant loans directly to SMEs. The decree adds a new source of funding for SMEs, which are already taking advantage of the so called “minibond regulation”, which allows them to issue bonds under favorable conditions.