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Loan securitization-Is it advantage issuer or investor?

Created by : Abhijeet Magdum, Business Analyst, ING Vysya Bank  | 04 07 2010 08:11:15 +0000
Keywords : loan securitization
Activity:  254 views;  last activity : 07 06 2010 20:18:09 +0000

Securitization is a structured finance process that distributes risk by aggregating debt instruments in a pool, then issues new securities backed by the pool. If the transaction is properly structured and the pool performs as expected, the credit risk of all tranches of structured debt improves; if improperly structured, the affected tranches will experience dramatic credit deterioration and loss.All assets can be securitized so long as they are associated with cash flow. Hence, the securities which are the outcome of Securitisation processes are termed asset backed securities(ABS). From this perspective, Securitisation could also be defined as a financial process leading to an issue of an ABS.

  
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ISSUER Vs INVESTOR
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Abhijeet good debate I agree with you.....

In this the issuer is more benefited because in a worst-case scenario where the pool of assets performs very badly, the owner of ABS would pay the price of bankruptcy rather than the originator. So in this case the investor in facing the problem .......

Thanks.....
By Leena Khade, Banc Assurance, Deutsche Bank  04 08 2010 10:56:19 +0000
 
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Yes, Loan security is must for all loans. Indian banks are survied in global slowdown because of it's strict loan policies.


By Omkar Kulkarni, Accounts Officer, Minilec(India) Pvt Ltd  | 04 10 2010 13:55:00 +0000
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Yes, Loan Security word itself showing the actual meaning behind it. Issuer are always on top/safe side i.e. Less Risk in LAP/LAS cases as comparison to PL or Credit cards etc. We have just saw the benefits of Loan security system in last recession year.....  India proved himself as more safer than any other..!


By Vipin Bhasin, Private Equity/Hedge Fund/VC-Manager, Indian Investment Co.  | 04 08 2010 19:34:09 +0000
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It is mostly advantage ISSUER--

Reduces funding costs

Reduces asset-liability mismatch-Securitisation allows such banks and finance companies to create a self-funded asset book.

Lower capital requirements : By securitizing some of their assets, which qualifies as a sale for accounting purposes, these firms will be able to lessen the equity on their balance sheets while maintaining the "earning power" of the asset.

Transfer risks (credit, liquidity,prepayment, reinvestment, asset concentration): Securitisation makes it possible to transfer risks from an entity that does not want to bear it, to one that does. 

Off balance sheet:This term implies that the use of derivatives has no balance sheet impact.

Better earnings and liquidity-Securitisation makes it possible to record an earnings bounce without any real addition to the firm. 


 
By Abhijeet Magdum, Business Analyst, ING Vysya Bank  | 04 07 2010 08:12:42 +0000
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