MPs propose reducing the requirements for mandatory risk retention to a maximum of 20%

Deputies plan to activate the market for non-mortgage securitization – the issue of securities backed by assets other than mortgage loans. The draft law proposes to reduce the risk level assumed by the organization providing security for securities to a maximum of 20%. Experts believe that in some cases this may not be enough, and on the other hand, to revive the market it is necessary to eliminate restrictions on investing in such securities.

On January 18, a bill aimed at developing the non-mortgage securitization market in Russia was introduced to the State Duma. It is proposed to reduce the risk rate that the originator – the organization whose assets serve as security for the securities – must take on. According to current regulations, he must take on at least 20% risk. The new version proposes to allow risk taking in the range of 5–20%.

The authors of the bill refer to data from the Cbonds agency, according to which the volume of the mortgage securitization market as of October 31, 2023 exceeded 2 trillion rubles, while the volume of the non-mortgage securitization market was less than 105 billion rubles. Apparently, one of the few participants in this market is VTB. In 2021, the bank placed bonds in the amount of 35 billion rubles. In 2022, VTB registered a securitization program for consumer loans worth RUB 100 billion. (see “Kommersant” dated October 25, 2022). According to Andrey Suchkov, head of VTB’s securitization department, by the end of last year the bank placed three bond issues of 10 billion rubles each.

In global practice, such bonds occupy a significant market share; their credit quality was not affected by the 2008 crisis, notes Andrey Korolev, executive director of the capital markets department of Sovcombank. The senior tranches of such issues for the most part have the highest credit rating (at the sovereign level), which puts them on a par with the bonds of first-tier issuers and government bonds in terms of reliability, the expert points out. Meanwhile, current legislation makes the issue of such securities unprofitable for both organizers and investors. In particular, according to Alexandra Verolainen, managing director for structured finance ratings at Expert RA, the minimum value of 20% limited the economic feasibility of transactions with highly reliable non-mortgage assets, such as car loans.

A set of measures to launch this market was proposed by the Association of Russian Banks (ADB) and SRO NFA. “The association has been seeking to launch a non-mortgage securitization market for several years and has repeatedly sent proposals from market participants to the Central Bank,” said ADB Vice President Alexey Voylukov. According to Andrey Korolev, lowering the requirement for mandatory risk retention will make it possible to take into account the characteristics of refinanced assets when structuring securitization transactions, making transactions with high-quality assets more attractive to issuers. In addition to the initiative considered, as Alexandra Verolainen explained, the bill includes two key areas: proposals to stimulate liquidity, in particular the development of the repo market, and eliminate restrictions on investments in such instruments by institutional investors through full recognition of the structured finance rating scale of national rating agencies.

At the same time, according to Ms. Verolainen, the proposal of the draft law to limit the upper limit of risk acceptance by the originator to 20% looks controversial. “Such an innovation may require senior issues that compete for the highest credit ratings to place mezzanine tranches that can absorb defaults beyond the 20% junior position,” she says. In addition, to assess the effect of the norm proposed in the draft law, “the list of conditions from the Bank of Russia is also important, which will reduce the amount of risk retention by the originator,” the expert notes.

Maxim Builov, Vitaly Gaidaev