One size fits all

To issue securities for loans to small businesses, banks need standards

As early as next year, at least two Russian banks may issue securities secured by payments on loans issued to small businesses. Trust banks and Sobinbank announced their intentions to securitize portfolios of such loans. True, the law “On Securitization” has not yet been adopted, which means that banks will only be able to issue Eurobonds. There are already examples of issuing similar securities secured by payments on bank cards or car loans. But the main problem with securitization of loans to small businesses, according to skeptics, is the heterogeneity and opacity of small businesses themselves.

Co-owner of the Trust banking group Nikolai Fetisov said yesterday at a press conference dedicated to the group’s plans that in six to nine months the securitization of a portfolio of loans to small and medium-sized businesses for at least $200 million will be carried out. In the near future, the bank will determine organizers of the deal.

“There are no examples of classical securitization of the loan portfolio of SMEs (small and medium-sized businesses) yet. There are direct interbank loans to banks operating under SME lending programs from players such as the EBRD, IFC, KfW,” says First Deputy Chairman of the Board of Sobinbank Alexey Gonus. Sobinbank plans to carry out a similar transaction in the second half of 2008, and, according to Mr. Honus, it will not be the only one among our banks.

So far, Russian banks have tested through foreign markets the securitization of mortgage loans (VTB, Gazprombank, City Mortgage Bank, Moskommertsbank), car loans (Soyuz Bank, Trust, Russian Standard), consumer loans (Russian Standard, Trust) ). MDM Bank and Alfa Bank securitized future proceeds to correspondent accounts.

Legislation in the field of securitization is just being formed. The first was the Law “On Mortgage Securities,” which made it possible to issue mortgage-backed bonds: this year the government Agency for Housing Mortgage Lending and the Gazprombank Mortgage company debuted with such issues. In order to legally ensure the issuance of Russian securities secured by proceeds from various loans or other regular payments, a law “On Securitization” is needed, which is still under development.

However, there is no consensus in the banking environment regarding the possibility of issuing securities for small business loan portfolios. Skeptics argue that preparing pools for this process will take too much time and effort, since such loans are too heterogeneous in the quality of collateral and terms. And often the borrowers themselves have non-transparent reporting that requires an individual assessment, which Western investors, for whom the securities issues will be designed, cannot understand.

“Theoretically, securitization of loans to small businesses is possible provided that the concept of “small business” is transparent for buyers of securities,” believes Sergei Suchkov, member of the board, director of the small business customer service department of VTB-24. Mr. Gonus adds requirements for the loans themselves: “These products must be standardized in terms of parameters - loan amount, rate, term, collateral, guarantees; the process of decision-making and issuing loans must be standardized, described in the bank’s regulatory documents and followed; It is necessary to unify the process of legal registration of a credit transaction - standard agreements, a legal package of documents.” All this is necessary for the most accurate assessment of the potential risk, default on the loan portfolio, he summarizes, suggesting that the possible rate on bonds secured by payments on loans to small businesses is 8-9% per annum. Large banks that actively lend to small businesses can afford to attract cheaper funds. “VTB-24 currently has no need for additional funding, and it is unlikely that it will be possible to seriously reduce the cost of raising funds through securitization,” says Mr. Suchkov.

Elena KHUTORNYKH