A look at the European DataWarehouse's role in the NPL securitisation space

The all too real impacts of the pandemic-driven crisis are already finding their way in to European DataWarehouse's (ED) loan-level data. While it does not relish that particular leading role, the repository intends to remain at the forefront of the development of the NPL securitisation market throughout the crisis and far beyond.

"We're already starting to see very early impacts of COVID 19 in our data set," says Christian Thun, ceo at ED. "They are especially prominent in countries that saw an earlier spread of the virus, such as Spain and Italy. For example, we are seeing an increase in new delinquencies for Spanish credit card loans compared to residential mortgages and consumer loans in the country."

ED reports that all sectors are beginning to show increasing delinquency rates, though defaults are yet to take hold. Thun cautions: "This data is only to the end of March and it's likely to be much more severe in April and over the course of the coming months. As time goes on, the picture will become clearer and the data more robust. But it's already clear that southern Europe will be hit harder than northern Europe and based on previous trends we expect that the self-employed will be most drastically affected."

The impacts will be widespread, however. "It hasn't started in earnest yet, but the recession is coming," Thun says. "The worldwide government economic support measures can only be temporary and once they are finished, non-performing loans will unfortunately start to rise, reversing the trend seen in recent years."

As a result, he says: "We expect to see an increase in NPL securitisations in the wake of Corona. While they don't satisfy ECB eligibility criteria, which require underlying loans to be performing, there is still strong investor appetite for this sort of product thanks to the yields they offer."

Equally, once the market begins to pick up, ED intends to resume its Q1 2020 activities. "Our pre-crisis focus for NPLs, in alignment with our general mission, was and still is transparency and standardisation," says Thun. "Standardisation will come with the ESMA templates for the securitisation market."

To that end, ED has been contributing to a number of Europe-wide projects in the NPL space for some time. Since 2019 it led and continues to lead a technical working group on the implementation of EBA Data Templates, for example.

In addition, ED attended two NPL Round Table discussions in January and June 2019 in Brussels hosted by the European Commission (DG FISMA). The objective of these round tables was to spur work to achieve pan-European NPL platforms. The initial intention of the discussions was to establish what would be needed to achieve this goal and within what timeframe; with a long-term aim of devising a plan for developing industry standards for European NPL platforms.

As part of this initiative, ED volunteered to set up a technical working group to make the EBA data template operational. To this end, ED organised and led four NPL technical working group meetings in the last six months, which are working to define standards for the NPL data collection and to draft a road map for the implementation of the EBA NPL loan tape. The meetings brought together more than 40 representatives from 20-plus organisations. The working group submitted a report on its findings to the European Commission in early April 2020.

Meanwhile, ED is also participating in discussions for creating a secondary platform for trading NPLs, for which ED has long since been a strong advocate. "We are confident that transparency within the transaction platform will widen the investor base, lower entry barriers to potential investors, improve data availability, support price discovery and facilitate the development of the NPL secondary market," says Thun.

Prior to 2019, ED implemented the first NPL templates and collected test files for NPLs, in accordance with reporting templates developed by the European Banking Authority (EBA), between February and June 2018. The templates provided a common EU data set for the screening, due diligence and valuation of NPL transactions.

The EBA templates were introduced as part of the EC Action Plan to tackle NPLs in Europe and aimed to further develop secondary markets. By providing a platform for the collection of test data, ED enabled banks, servicers and other market participants to become familiar with the EBA templates and loan-level reporting for residential mortgages and loans to small and medium corporations.

Before that, ED leveraged available NPL data in 2017 to provide insight into Italian NPLs. It published a report that provided an overview of the, then, current status and challenges for enhanced NPL transparency and summarised the lessons learned in the context of the ECB ABS Loan-level initiative.

ED has also been quoted in numerous publications released by the ECB and European Commission where it is recognised and referenced as a market leader and key stakeholder in the NPL market. These include the 'Commission Staff Working Document on European Platforms for Non-Performing Loans' (2018); the 'Report of the FSC Subgroup on Non-Performing Loans' (2017); and the ECB's article on 'Overcoming non-performing loan market failures with transaction platforms' (2017).

Despite its list of past achievements, ED is more interested in looking ahead. Thun concludes: "We remain dedicated to the future of NPLs in Europe and plan to continue our efforts in the market for the coming years."

Mark Pelham

About the European DataWarehouse
European DataWarehouse (ED) is the first and the only centralised securitisation repository in Europe for collecting, validating and distributing detailed, standardised and asset class specific loan-level data for ABS and private whole loan portfolios. ED stores loan-level data and corresponding documentation for investors and other market participants. Through ED's data, users are able to analyse underlying portfolios and compare portfolios on a systematic basis.

ED was established in 2012 as part of the implementation of the ECB ABS loan-level initiative. Since its inception as an initiative by the leading participants of the European securitisation market, ED has collected loan-level data and relevant documentation for more than 1,400 transactions.