Page 13 - Annual Report 2010

Introduction

11

dence but also strongly on the direct and indirect impact from regulatory preferences. 1

Microfinance

Microfinance institutions have been affected by the ad-verse macro-economic conditions, generally through significantly higher incidence of bad debt among their clients and in some cases through increased difficulties in accessing external sources of funding. The target group for microfinance, namely the financially excluded but economically active, is faced with tightening credit sup-ply by mainstream banks due to higher risk aversion and de- leveraging balance sheets. This creates an opportu-nity for microfinance, but also underlines the paramount importance of credit risk management in an industry that, in Western Europe at least, continues to be driven by socially motivated investors and entities providing micro­ finance as part of their social responsibility initiatives.

1 For more details on SME loan securitisation see EIF Working Paper 007/2010; http://www.eif.org/news_centre/research/index.htm

volumes were almost exclusively driven by the eligibility of Asset Backed Securities (ABS) as collateral for European Central Bank (ECB) liquidity operations.

Given the dominance of the securitisation of residential mortgages, SME securitisation has remained a relatively limited but important segment of the European structured finance market (between 6% and 16% of total yearly issuance during the decade). Following a year without the public placement of an SME transaction, in 2010, the SME securitisation market has shown some signs of reopening, with two benchmark transactions successfully closed in UK and Germany. In both cases, EIF played a key role. However, the SME securitisation deal flow - both in terms of number of transactions and volumes placed with market investors - is expected to remain well below pre-crisis levels for some time.

With regard to existing transactions, and as anticipated in EIF’s Annual Report 2009, the pressure to downgrade transactions, based on criteria revisions by the rating agencies and the performance on underlying loan level, continued in 2010. However, due to the focus on the ac-tual performance of transactions rather than such techni -cal changes, this trend might be reversed in 2011.

In general, a continuation of the gradual recovery of the European Structured Finance market is expected, however this will not only depend on the development of market fundamentals and the enhancement of investors’ confi -

Figure 3: SME securitisation volumes in Europe (in EURbn)

(SMEs securitisation and share of SME securitisation in total securitisation)

Source: based on data from AFME/ESF and KfW

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

  SME Sec (lhs)    Share of SME Sec in Total Sec (rhs)  

80

70

60

50

40

30

20

10

0

18 16 14 12 10 8 6 4 2 0

I I I I I I I I I

Year