SCI recently asked Georgi Stoev, head of Northern Europe & CEE, Securitisation at the EIF, for his views on the CEE SRT market and the role of the EIF in the region

The EIF invested over €3bn in the securitisation market last year, of which €2.8bn was executed in a synthetic format. In terms of jurisdictions, the fund continues to strengthen its engagement across Central and Eastern Europe (CEE), with Romania (accounting for over €700m of investments), Bulgaria (close to €500m) and Poland (€450m) topping the investment list.

Q: Is Poland now a mature SRT market? 
A: The way I would answer that question is as follows: I would consider a market to be in a mature form if transactions take place, even without the participation of multilateral development institutions such as ourselves. For instance, last year we only invested in one Polish transaction and we know of many others that were executed with some of our competitors or partners from the hedge fund and pension fund industries. Given that these transactions took place with considerable amounts of investments, I would tend to consider Poland as a fairly mature market in terms of SRT transactions.

However, I would further add that I believe Bulgaria and Romania are quickly but solidly becoming mature markets as well. We started our investments in Bulgaria in 2022 and in the last year we completed two transactions for close to €500m of investments. Similarly, last year Romania topped the list of our investments with over €700m of investments across two transactions.

Additionally, we definitely see interest from the wider region. For example, two years ago, we invested in a Slovakian transaction; 3.5 years ago we participated in a Czech transaction and last year we invested in a large pan-Baltic transaction. I would therefore say that we are fairly active across the region.

Q: How do you view your role and presence as an international financial institution in the region? Would you say you are still the most cost-effective option?
A: I wouldn't say that our main competitive advantage is the cost. As I've said numerous times at conferences and symposiums, we are not the investor that will go the deepest in the capital structure.

Our risk appetite is more in the double-B area, rarely in the single-B area. Our partners, as I called the pension fund industry or the hedge fund industry, can afford to go very deep in the capital structure - even in the first loss piece - thereby taking a lot more risk than what we are able or willing to contemplate.

Clearly, the pricing is a function of the risk that is being underwritten. From that perspective, nominally, our pricing would be lower than the one of the hedge funds, pension funds or insurance companies. However, risk-weighted-wise, I don't think our pricing is very dissimilar to the one of the hedge funds or the pension funds.

10 years ago, the share of CEE within our investment book was in the single-digits. Last year, 56% of our investment in terms of volume and amount went to the CEE region.

Therefore and obviously there is some strategic consideration that needs to be taken into account when looking at our appetite for CEE. And that is clear because as a multilateral development institution – apart from enhancing access to finance for SMEs, which is the reason why we invest in securitisation transactions – we want to broaden the market.

Strategically, we are there as the first mover most of the time. And when we see that the market has the potential and the depth to pick up on its own, then we tend to play a lesser role in this market. A perfect example of that is Poland, where we only did one transaction last year.

Q: What is you outlook for this year? Do you expect an expansion away from core SME/corporate portfolios?
A: As you rightly pointed out, our bread and butter is in the SME securitisation transactions. However, for years, we have not been limited to SMEs only. Actually, one of the transactions that we concluded in Bulgaria last year is a mixed portfolio of SME and consumer loans.

But we also have pure consumer portfolios and pure mortgage portfolios and are therefore not solely limited to SMEs. However, the vast majority of our investments are indeed in transactions backed by SME collateral.

We invest in securitisation transactions to enhance access to financing for areas which are of strategic policy objectives. SMEs is one of those areas, but green financing is another one.

We can decide to invest in a mortgage-backed portfolio, whereby we ask the originator to commit to originating new mortgages which are for green housing only. In that sense, we would be active also in other asset classes, as long as we can establish that there would be something positive done either for SMEs or for the green transformation as a result of our investment.

To conclude, I expect this region to be a backbone of our investment for the coming years.

Vincent Nadeau

For a sell-side perspective on the CEE SRT market, read our recent interview with UniCredit (SCI 5 January).