S&P: Retail Loans Look Ripe for Russian ABS

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More diversity may be on the way for Russia’s traditionally mortgage-monopolized securitization market, according to a report by Standard & Poor’s.

Unsecured retail loans look especially ripe for the asset-backed treatment.

The catalyst for a broader scope of securitizable assets is legislative.

“The ABS market, which so far has been almost nonexistent since the financial turbulence of 2008-2009, may gain a second wind starting in July 2014, when a new domestic securitization law goes into effect,” the agency said.

The law will facilitate the securitization of a range of assets. To date, securitization legislation has only covered mortgages. The new law codifies the establishment of SPVs and comes with a bundle of amendments to existing laws that will help regulate asset pledges.

Retail loans are a good candidate for securitization because of their growth, according to S&P. Origination in the sector soared between 2010 and 2012 (see chart below). While it is slowing down, the pace remains above 20%.

The agency estimated that the outstanding amount of loans to individuals (excluding mortgages) totaled RUB9.7 trillion ($266 billion) as of Dec. 1, 2013.

“Banks still require funding to maintain the growth in retail loans,” S&P said. “The new law’s ability to bolster the domestic ABS market will largely depend on cost efficiency of securitization compared to unsecured bonds, including capital gain potential under Russian accounting standards.”

Mortgage-backed securities, for their part, are expected to hit a major speed bump this year.

A major buyer of RMBS, Vnesheconombank (VEB) is gradually pulling out of the market. S&P said that VEB had a $30 billion RMBS portfolio by the end of last year, equal to about 20% of all the deals issued in 2012 and 2013.

Last year was a record year of RMBS issuance in Russia, with RUB94.5 billion floated, a 75% leap from 2012 (see chart below). S&P does not expect this growth to be sustained.

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