The Bank of England’s Funding for Lending Scheme (FLS) has slowed U.K. RMBS issuance and is partly responsible for a slowdown in European securitization issuance in October, according to Standard & Poor’s.
The rating agency said today in an e-mail that investor-placed securitization issuance reached €4.1bn in the month—down 52% from last month and 56% from October 2011. Investor-placed RMBS issuance, year to date, totaled €58bn, down 9% from 2011.
The FLS allows banks and building societies in the U.K. to use certain pools of loans as collateral against borrowing Treasurys from the BoE with a maturity of up to four years. Originators can borrow up to 5% of their loan book, plus any next expansion of lending from July 2012 to Feb. 2014.
Citigroup said in a report today, that utilization data released by the BofE for FLS on Dec. 3, showed that participating banks have already borrowed £4.360 billion from the BoE through the FLS and lent a net £496 mn to U.K. households and business in Q3 2012.
Under the scheme funding rates are lower in most cases than the real market can offer, according to Philip Walsh, head of EMEA structured finance business & relationship management at Fitch Ratings. "Perversely, the existence of the UK Funding for Lending Scheme and the potential dearth of new issuance may bring the comparative cost of funds between the scheme and the market further into line," said Walsh in press release today.
As a result, Fitch said that U.K. RMBS could fall by 50% on 2011 levels, affecting both overall issuance and placed issuance levels.
Moody’s Investor Service structured finance, managing director, Neil Shah agrees that the forecast for U.K. RMBS will like be dampened in 2013. “While U.K. lenders will continue to utilize a variety of funding sources in 2013, they will cover part of their funding requirements through the U.K. FLS,” he said. “The FLS allows U.K. banks to obtain funding at competitive interest rates.”