VTB gets creative to skirt Russian ABS risk weights
27 June 2016
Metallinvestbank has issued the Russian market’s first single tranche securitization deal, as banks look to avoid punitive risk weights on junior ABS tranches.
The Rb3.28bn (€ 45.7m) deal was structured by VTB Capital and priced with a coupon of 10.25%, yealding a spread of 145bp over the OFZ curve at the time the deal was placed.
The deal was bought by domestic pension funds and credit organizations and was the first to be placed purely in the market in over two years, according to Andrey Suchkov, senior vice president at VTB bank, head of securitization at VTB Capital.
“Other deals that had been launched during the period have either been retained or closed within government sponsored programmes. This is a very good sign that there is real investor appetite, in particular from non-state pension funds, banks and financial institutions. This level of investor interest allows us to look with optimism at the deal pipeline for the second half of the year”, he said.
Russia RMBS issuance has been stifled by low mortgage origination volumes and the implentetion of new risk weight regulations in January this year, which increased the risk weight on the junior ABS tranches from 100% to 1,250%.
To avoid structuring the deal with a junior tranche, Metallinvestbank is providing a junior loan to the deal structure to cover overcollateralization, reserve funds and issuer expenses. Credit support for the senior notes is also provided by a guarantee from the Russian Agency for House Mortgage Lending (AHML).
Suchkov was optimistic that mortgage origination would increase this year, having dropped by 36% in 2015, and that credit performance would remain stable.
"Mortgage lending is the most dynamic retail asset right now compared with auto or consumer loans", he said. "This is partially because of government support through the interest rate subsidy programme. Underwriting criteria is also softening, so origination has become more flexible. We have seen some declines in real incomes, but there has also been a decline in interest rates, and house prices are stable.