Three major talking points from SCI's Emerging Europe SRT Seminar in Warsaw

Over 100 SRT practitioners gathered in the Polish capital for SCI’s inaugural Emerging Europe SRT Seminar last week. Panellists spoke about their excitement for the market, barriers to entry for new players and everyone’s favourite villain - regulations.

1. A booming market

“Since Covid and somebody in the Kremlin, who shall remain nameless, Europe was forced to think about its own financial system in greater detail. We had a glut of assets and a glut of capital, which allowed regulators to think about SRT as a major tool,” explained Harry Noutsos, md at PCS.

This explosion in SRT adoption has, of course, also expanded to Central and Eastern Europe (CEE) - with around 20 synthetic securitisations completed in the last year, according to Georgi Stoev, head of northern Europe and CEE securitisation at EIF. Stoev opined that the more transactions a market sees, the better: “When you do a transaction, you can leverage the knowledge to do more of them.”

But the knowledge does not only come from within the CEE, with multinational banks spreading knowledge from their other jurisdictions which can be picked up by local banks.

So, what are the benefits and pitfalls of the CEE as an SRT region? Some aspects of the region’s banking system are a benefit, according to panellists.

While western European banks can often have antiquated computer systems that make it difficult to successfully implement the data used in SRT transactions, eastern European banks have an advantage in this respect. Stoev explained: “Because the eastern European banking sector basically started afresh in the 1990s, the data is much easier to extract.”

But other factors also pose challenges. The first is that while Poland is a large economy and similar to Germany’s, other CEE jurisdictions are not quite so large or modern. There is also the matter of zloty, the Polish currency - which is “not local to many jurisdictions, and can also be more volatile”, according to Robert Bradbury of Alvarez & Marsal.

2. Barriers to entry and things to consider

Data is the frequently cited concern of issuers before bringing their first transaction. However, some other, even simpler considerations are not always properly thought through.

Bradbury said: “For inaugural issuers, the actual binding constraints tend not to be data quality, but instead deciding what is the actual capital requirement. When doing an SRT, you need to consider what you actually want to achieve, which banks don’t always initially do.”

He continued: “This can get very political, because there are a lot of different opinions within the bank, but you need to talk through the RWAs and get everyone singing from the same hymn sheet. You also need to consider what investors need – bilateral or STS, for example.”

One such example, which SCI has heard from other sources, is PKO Bank. The partially state-owned outfit had a post-election change of management and SCI understands it subsequently needed to convince the new managers of the benefits of SRT.

3. Regulation

The CEE has a lot of benefits in that it shares the Securitisation Regulations with the rest of the EU – but there are also some shared problems.

As Noutsos put it somewhat hyperbolically: “The regulators want to agree on a consistent guideline, but 25 have seen only one or two transactions. And the job of the regulator is not to grow the market, it’s for no deal to fail.”

He described this as a “fear factor” and said there is only one solution: more deals of all kinds, which will expose the regulator to the product. This fear factor seems to be lessening over time, with EIF cio Alessandro Tappi describing his first securitisation in the market decades ago as a “headache”.

Another headache can be STS, which - while described as a beneficial “game changer” for both regulators and issuers when possible - can be scuppered by homogeneity rules in circumstances like cross-jurisdictional deals, which allow CEE issuers to aggregate portfolios big enough to securitise.

However, regulation also allows the market to exist. UniCredit’s Wasif Kazi explained: “The CRR was the best thing to happen to securitisation because it fortified strong rules with RTSes and gave everyone something to adhere to. The EU’s very meticulous regulation enabled SRT to operate the same way across the globe. Before the regulation, it was not always the case that these deals were actually offsetting risk and without it, I think we’d have very sporadic transactions.”

Joe Quiruga