SME securitisation in Europe The German perspective Bratislava, 15-16 May 2008 Andreas Rahe, Vice President 30042008
SME securitisation in Europe (EU) Development of European SME transactions 2000-2007: 144 transactions with a securitisation volume of EUR 190 billion SME securitisation Europe 2007 7% European SME securitisation market 60,0 38 40 50,0 35 30 93% 40,0 24 25 SME securitisation Other ABS EUR billion 30,0 20,0 12 14 20 20 49,6 46,6 20 15 Number KfW PROMISE market share in European SME securitisation 2000-2007 10,0 8 8 13,8 9,7 13,9 12,6 17,8 26,4 10 5 24% 0,0 2000 2001 2002 2003 2004 2005 2006 2007 0 volume number 76% Other SME securitisations KfW share 2 Source : Moody s, KfW Bankengruppe
SME securitisation in Europe (EU) Spain and Germany are the most active markets Belgium 1 transaction ( 25 bn) Great Britain 3 transactions ( 69 bn) Netherlands 5 transactions ( 232 bn) Germany 57 transactions ( 83 bn) Denmark 1 transaction ( 04 bn) France 1 transaction ( 333 bn) Poland/Czech Republic 1 transaction ( 045 bn) Portugal 4 transactions ( 55 bn) 3 Spain 68 transactions ( 625 bn) Switzerland 3 transactions ( 64 bn) Italy 6 transactions ( 33 bn) Greece 1 transaction ( 23 bn) Austria 1 transaction ( 10 bn)
SME securitisation in Europe Findings Publicly sponsored programmes to support market development SME securitisation is lagging behind most other asset classes, which developed very successfully without public sector support Significant volume only if publicly sponsored programmes are available - Spain: FTPYME scheme (guaranties) - Germany: KfW s PROMISE securitisation platform Standardisation of structures to reduce transaction and market entry costs Low level of SME securitisation activity until 2004, from 2005-2007 a significant rise in SME securitisation - Have SME ABS been established successfully as an asset class? - Catalyser effect of public sponsorship for market development? Complementary promotional schemes: Contribution to market development through risk taking, eg EIF s credit enhancement activity, KfW s SME ABS 4
SME securitisation in Europe Why is public support necessary? Discrepancy between the potential of SME securitisation and the current maturity of the market (eg securitisation is much more widespread for nearly all other asset classes) Reasons: - SME loans are difficult to securitise SME loans are characterised by a lack of homogeneity (variation in size, companies with different legal forms, variety of collateral etc) - SME securitisations are characterised by high fixed costs Due to the complex nature, SME securitisation are quite expensive, but the larger the pool, the lower the costs The problem: Smaller banks often do not possess large SME-pools 5
SME securitisation in Europe Development of German SME transactions 2000-2007: 57 transactions with a securitisation volume of EUR 83 billion SME Securitisation in Germany (1998-2007) EUR bn 25 20 15 10 5 0 2 6 44% 4 KfW PROMISE market share in German SME securitisation 2000-2007 Other German SME securitisation 2,7 10,2 10,5 4,2 9,8 4,7 4 4 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Volume KfW PROMISE SME securitisations 3 Number 3 1,1 56% 7 9,3 14 19,3 10 11,4 16 14 12 10 8 6 4 2 0 number of transactions 2000-2007: Market share of German SME transactions in Europe 44 % by volume 6 Source : Moody s, KfW Bankengruppe
KfW s synthetic securitisation activities PROMISE platform basic structure Bank KfW Senior CDS OECD-Bank Reference Credit Default Swap (CDS) Risks of the reference Certificate of indebtedness (Schuldscheine) Issue proceeds of CLN Super senior tranche of the (80-90 %) AAA SPV in Germany CLN Issue Proceeds AA A BBB BB FLP 28 transactions with a volume of EUR 476 billion 7
KfW s synthetic securitisation activities PROMISE platform strengths Investors are familiar with KfW s platforms, KfW platforms are recognized as quality product Standardised structure and documentation Cost reductions due to existing template and investor familiarity Easy execution due to high degree of familiarity of all parties involved (originator, investors, rating agencies, lawyers) KfW s 0% risk weighting allows for maximum capital relief KfW acts as neutral intermediary Flexibility to accommodate the needs and specific requirements of different asset classes and originators 8
KfW s synthetic securitisation activities PROMISE platform benefits for originator Economic and regulatory capital reduction: Possibility to delink lending growth from equity growth since securitisation releases tied up tier 1 capital Securitisation as risk/ management tool via the transfer of credit risk to capital markets Improvement of ROE ratios Portfolio EUR 1 billion Situation before asset securitisation Capital requirement EUR 80 million (8%) Capital release: 65 % Situation after asset securitisation Capital requirement EUR 28 million (28%) 9
KfW s synthetic securitisation activities Variation Pfandbrief (covered bond) structure Alternative source of funding, diversification of funding sources (Variation of PROMISE platform covered bond structure ) Bank Reference Loss Guarantee KfW Risks of the reference Senior CDS Certificate of indebtedness (Schuldscheine) OECD-Bank Super senior tranche of the (80-90 %) SPV in Germany CLN Issue AAA AA A Issue proceeds of CLN In the covered bond structure, KfW has no termination right in case of insolvency of the bank This structure allows banks in Germany to use the KfW guaranteed reference to issue Pfandbriefe (covered bonds) (Risk transfer plus funding) Proceeds BBB BB FLP 10
KfW s synthetic securitisation activities Achievements so far (2000-2008) KfW-Mittelstandsbank: Securitisation of SME risk Inception of PROMISE: December 2000 20 transactions executed under PROMISE 8 other deals including SME related assets Notional amount transferred to capital markets: EUR 476 billion A total of 108000 SME loans was securitised through PROMISE 2000 2001 2002 2003 2004 2005 2006 2007 2008 Notional amount (EUR billion) 350 265 777 499 370 394 945 1002 1,56 Since summer 2007: 3 transactions with a volume of EUR 62 billion 11
KfW s securitisation activities SME ABS - Investments in structured SME risk Promotion through risk taking KfW acts as a risk taker primarily through investments in senior and mezzanine tranches KfW as an early stage investor in transactions with new and innovative features Since 2005: 23 investments with a volume of EUR 17 billion Europe with a focus on Germany Promotional Impact: KfW s role as a risk taker facilitates originators to better and easier bring the transaction to the market Efficient allocation and pricing of SME risks in the capital market KfW s goal is to promote the a secondary market for SME risk 12
KfW s securitisation activities SME ABS structure Banks / loan market Liquidity Capital market Bank Reference Sale of SPV Issue of CLNs CLNs Senior ABS Investors Cash proceeds Cash proceeds Mezzanine Junior KfW Banks / loan market Risk transfer Capital market 13
SME securitisation in Europe Summary Use of SME securitisation took off significantly during the last few years Clear trend towards: More countries, more banks, smaller s Clear correlation between the level of public support and use of SME securitisation (share of SME securitisation in Germany 2007: 21 %) KfW has made a significant contribution to the development of the SME securitisation market in Germany SME market is still relatively underdeveloped if compared to other asset classes (share of SME securitisation in Europe 2007: 13 %) Availability of securitisation option increases the supply of SME loans 14
Contacts KfW Asset Securitisation Andreas Rahe (Vice President) +49 69 7431-3687 or andreasrahe@kfwde Please refer to our website for more information http://wwwkfwde/en_home/loan_securitisation/disclaimerjsp 15