Supporting SME Financing using Securitisation Techniques

8/14/2019 Supporting SME Financing using Securitisation Techniques

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Supporting SME Financing using

Securitisation Techniques


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Table of contents

Introduction............................................................................................................... 3

1 Overview of the SME securitisation market........................................................ 4

1.1 A few words on the European securitisation market.....................................................4

1.2 Review of completed and pending works by other entities ..........................................5

1.3 Main current features and trends of the European ABS market of SME loans..............8

1.4 Challenges of the market............................................................................................ 10

2 Public Sector Bodies and SME Securitisation .................................................. 11

2.1 Rationale for intervention of public sector agencies ................................................... 11

2.2 Rationale for originators ............................................................................................. 12

2 3 Understanding the needs and concerns of originators: Scope and results of the Pan


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Introduction

The scope of the study conducted by a dedicated AMTE working group is the

efficiency of European SME securitisation techniques. This initiative, which aims to

increase the efficiency of Euros Capital Market and benefit the SME financing

activity, involves the intervention of different actors of the economy. Although each

of these actors may have specific drivers of interest, the fundamental role and the

source of dynamism for the European economy of the SME activity leads to a

convergence of actions.

Among the main drivers for active participation, SME loans appears to be a key

asset class for portfolio managers of banks, which are often subject to some

regional, corporate and industry concentrations, and especially as it is the most

sensitive by nature to economic downturns. For public sector agencies,

securitisation has been identified as an area of interest by which they aim to

support and stimulate lending to SMEs. For structuring banks, there is an interest

due to the high potential for future growth. And finally for investors, it is an

attractive area where they can reach further risk diversification.

Nonetheless, specific challenges for this asset class have kept issuance volumes

l d t th ABS t l I d d b th bli t tt ti d


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1Overview of the SME securitisation market

1.1A few words on the European securitisation market

For uninitiated readers and claritys sake, securitisation is the mechanism by which

individually illiquid financial assets such as loans are converted into tradable capital

market instruments. More specifically, selected receivables (assets) of the originator

are packaged together in an underlying pool and sold by the originator to a Special

Purpose Vehicle (SPV). The SPV refinances the pool by issuing debt instruments

(Asset Backed Securities or ABS) on the capital markets.

Among benefits of securitisation, ABS transactions help issuers to get funding,

transfer risk and extend maturity of financing. These benefits can be achieved

under two main structures; a cash structure where the primary benefit for the

originator is to get funding and a synthetic structure with no funding elements

allowing a pure risk transfer through credit protection contracts. An ABS structure

allocates collections from an underlying collateral of receivables (asset claims) to

the securities in the form of so called tranches. This allocation of collections also

extends (inversely) to the distribution of losses among the different tranches in


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Total Funded ABS issuance volumes in ! Bln from 2001 to 2006 YTD

(European assets and European distribution)

0.0

50.0

100.0

150.0

200.0

250.0

300.0

350.0

2001 2002 2003 2004 2005 2006

Source: SG Credit Research


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Members of this AMTE working group have already taken part to similar workshops

on related topic and previous studies have been used as preliminary material to go

further in the analysis.

Some previous studies and Working Papers on SME Securitisation by other

entities:

EUROPEAN COMMISSION DG ENTERPRISE AND INDUSTRY, Study on asset

backed-securities: impact and use of ABS on SME finance, November 2004

EUROPEAN COMMISSION and FBE Fifth EU Bank-SME Round Table February

2006-2007: the securitisation of SME loans

IMF: Asset Securitisation as a Risk Management and Funding Tool: What Does itHold in Store for SMES? February 2005

EUROPEAN INVESTMENT FUND: Securitisation as a means to enhance SME

financing 24/04/2003

KfW and EIF Workshop on SME Securitisation: June 2nd 2005; where the following

were presented:


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Securitisation of Mezzanine SME Loans An overview of Existing

Programmes and their Rationale, Markus Herrman, Director, Head of

ABS Research & Strategy, HSBC

Mid Cap Bonds and Securitisation of SME Bonds Access to the

capital Markets for Austrian SMEs, Henriette Hochgatterer, ExecutiveDirector Treasury, Investkredit Bank AG

How does it feel when they securitise your loan? Experiences from

participants in Securitisation Programme, Ralph Lanckohr, CEO,

International Holding AG, Stefan Meutsch, Managing Director, and

Christian Jrgens, Managing Director, Vereinigte Verlagsanstalten

GmbH

The AMTE Working Group on SME Securitisation Aims and first

results, Philippe Madar, Chairman of the AMTE working group on

SME securitisation, Managing Director ABS Europe, Socit

Gnrale Corporate and Investment Banking


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1.3Main current features and trends of the European ABS market of SME

loans

SME securitisation activity across the EU relies on local markets. In addition to the

local specificities, the lack of homogeneity between the SME loan portfolios makesthe securitisation of SME portfolios more complicated than for other ABS asset

classes. With SMEs accounting for over 90% of all European enterprises a recent

study concludes that SME assets account for an average 15.5% of European bank

assets, which amounts approximately to 3,300 billion. Based on this assumption,

a study for the European Commission estimated that between 1% and 2% of

securitisable SME claims in bank balance sheets have been securitised. Therefore,

there is still considerable scope for growth in this asset class in the coming years.

For illustration, the charts below show the amounts of SME risk transferred to thecapital markets by distinguishing cash and synthetic structures and the repartition

by country.

European SME issuance volumes in ! Bln from 2000 to 2006 YTD

35 0

40.0


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Funded SME issuance volumes in ! Bln from 2000 to 2006 YTD

AUSTRIA

BENELUX

BRITAINEUROPE

FRANCE

GERMANY

GLOBAL

ITALY

LUXEMBOURG

NETHERLANDS

PORTUGAL

SPAIN

SWITZERLAND

POLAND & CZECH

Source: SG Credit Research


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the guarantee of the Kingdom of Spain. These features will be addressed later in

the report.

It can be noticed that the high level of activity in Germany and Spain is probably in

most part attributable respectively to the PROMISE programme sponsored by KfW

and the FTPYME programme supported by the Spanish Government. Due to theirimportance, the second part of the report presents these programmes in detail.

Based on recent transactions and market participants views, the main trends in the

securitisation market are an increasing investor demand, an improved liquidity

following the development of the secondary market and a standardisation of

structures. As a consequence, the market is expecting the volume issuance of SME

securitisation to grow tremendously in the years to come.

1.4Challenges of the market

Though expected to grow as a whole, there are some specific driving forces behind

the development of the SME securitisation market. In particular, considering the

impact of Basel II on Regulatory Capital of retaining SME exposures and securitised

portfolios of SME loans, originators will be required to perform advanced risk


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2Public Sector Bodies and SME Securitisation

2.1Rationale for intervention of public sector agencies

Public sectors bodies have implemented proposals geared at maximizing the

impact, efficiency and catalytic effect of public sector intervention in SME

securitisation. The principal advantage in SME securitisation being developed

further is without doubt that it can help support greater lending volumes to SMEs.

Securitisation helps to ease the capital and funding constraints of their primary

lenders. Thus, banks and other financial institutions will potentially have enhanced

capital and funding resources by using SME securitisation techniques that attractnew investors with previously limited exposure to SME risks and transfer risks from

banks to broader risk taking population.

In addition, securitisation could provide a mechanism whereby higher risk SME

borrowers, on the edge of credit acceptability and previously denied credit, could

have their needs met, albeit at an appropriate price.

F l t ti B l 2 it l i ht SME l di ill i


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2.2Rationale for originators

2.2.1Regulatory: Basel II Capital Weights on SME assetsThe source of SME financing is facing concerns due to the coming implementation

of the new Basel Capital Accord (Basel II). SME lenders, i.e. mostly banks, will be

forced to update their systems and the way they manage SME exposures. Indeed,

a deeper analysis of credits through a refinement in scoring models and other

procedures may involve high implementation costs and the concern is that it could

reduce the lending activity toward SMEs.

More directly, Basel II capital requirements are expected to change and will have animpact on SME securitisation. To illustrate and better assess the potential effect of

the new regulatory framework, we provide a sensitivity analysis under the advanced

IRB approach where the following assumptions can be set:

The range of one-year probability of default taken into account is

[0.2%;3.0%] corresponding to the credit ratings of assets between

BBB/Baa2 and B+/B1


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The charts enable to highlight the large sensitivity of the Basel II capital charge to

the various inputs. From this illustration and given the heterogeneity of loans

classified as SMEs, a direct impact on the originators capital requirements can not

be derived.

G ll th B l C it l A d ill ti t b k t d t th i i t l

Impact of Maturity on Basel II Capital Weights

with a 50% Recovery Rate and !m25 Turnover

0%

2%

4%

6%

8%

10%

12%

0.2% 0.4% 0.6% 0.8% 1.0% 1.2% 1.4% 1.6% 1.8% 2.0% 2.2% 2.4% 2.6% 2.8% 3.0%

BBB BBB- BB+ BB BB- B+

Mat 1.5y Mat 3.0y Mat 4.5y Basel I %


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2.3Understanding the needs and concerns of originators: Scope and results

of the Pan European Survey conducted with the collaboration of the FBE

Gaining a better understanding of the needs and concerns faced by originators of

SME loans is one of the two main goals of the Workshop on Public Sector Bodies

and SME securitisation. To this end, the working group agreed that one of the best

tools would be to develop a survey which would be broadly distributed to

originators throughout Europe. A key step was developing this initiative with the

collaboration of the European Banking Federation (FBE) and the European

Association of Cooperative Banks should also contribute.

The FBE concluded that the AMTE initiative could be of interest for the Fifth EU

Bank-SME Round Table, whos third and final topic is the securitisation of SME

loans. The Round Tables are organised by the European Commission to promote

dialogue between banks and SMEs and, ultimately, to promote the availability of

finance for SMEs. One of the objectives of the current exercise is to identify good

practice and procedures which could be more widely adopted around the EU. The

Fifth Round Table began in February this year and will conclude early in 2007.

Securitisation is one of three aspects of Bank-SME relations on the agenda. The

others are transparency; and mezzanine finance and business transfers. AMTE has

been invited to these Round Tables.


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The survey takes the form of a short questionnaire which is intended for completion

by individual banks, whose names are kept rigorously anonymous.

The list of countries which have responded to the survey are the following: Armenia,

Austria, Cyprus, Czech Republic, Finland, Germany, Ireland, Italy, Lithuania,

Norway, Portugal, Slovenia, Sweden, UK and there were some other answers forwhich the country of origination has not been disclosed. More than a third of all

answers stem from countries in Eastern Europe. Detailed information can be found

in Annex 6.2.

In terms of SME portfolio sizes, the total amounts to 318.7 Bln equivalent. It is

mainly made of portfolios of 41 Bln in UK, SEK 508 Bln in Sweden and 201.2

Bln in Eurozone countries.

In addition, based on countries which answered the survey, we present below the

breakdown of SME portfolio sizes according to the originators rating range:

Originators' rating range in !Mln %

AAA 61 194 19.2%

AA 102 609 32.2%

A 151 969 47.7%

BBB 1 181 0 4%


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Present and future SME lending

With respect to the SME lending strategy, originators do not feel constrained on

average by risk exposure, regulatory capital weighting and concentration: Only one

third of all originators see their risk exposure towards SMEs as an obstacle. These

facts explain why 95% of originators plan to increase their SME lending in thecoming years.

Despite the welcoming willingness of banks to hand out more money to SMEs in

the future, the amount of loans granted would grow even further should originators

benefit from cost efficient risk transfer and regulatory capital relief: 4 out of 5 banks

would expand their lending if they could transfer risk cost-efficiently.

This is an important result: Obviously, for some banks, securitisation of SME-loans

is too expensive, which prevents them from securitisation and increasing SMElending.

Perception and knowledge of securitisation and public sector initiatives

relating to the latter

Among the originators who have responded to the survey, there is a slight majority

which has not previously securitised assets in general and also which does not plan

t iti SME l


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Difficulties of SME securitisation

When it comes to the main difficulties tied to SME securitisations, costs seem to be

the most important obstacle. 57 % of all answering banks value the costs of

securitisation as too high, and only 16 % regard the cost argument as of minorimportance. This result fits well to the results mentioned above, according to which

banks would extend SME lending if a cost-efficient way of risk transfer would be at

hand.

No clear picture emerges when it comes to the question whether the portfolio is too

small, 43 % reckon this as a difficulty whereas at the same time 43 % answered

that the size of the portfolio is no obstacle to securitisation.

Summary

The survey shows that originators connect securitisation with a wide range of

advantages, whereupon the management of SME risk seems to be of particular

importance. Looking at the main concerns and difficulties faced by originators, the

cost argument dominates all other obstacles. This is also confirmed by the fact that

an overwhelming majority of banks answered that they would increase SME lending

if t ffi i t t t f i k ld b il bl


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2.4Quantitative and qualitative effects of promotional programmes for SME

securitisation in Europe

The other main task of this AMTE workshop concerns a qualitative and quantitative

assessment of existing Public Sector Agency sponsored programmes in Europe.The first step is performed through a qualitative analysis of the comparative role of

different public sector agencies existing structures. It provides a focus on the

guarantees which are provided, in which countries and regions as well as on the

specific conditions required.

The European programmes reviewed in this document are:

The Spanish FTPYME scheme

EIF guarantees

The Portuguese Securitisation Scheme

The KfW Promise programme

I dditi tit ti l i f t ti h b f d b i


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2.4.1The Spanish FTPYME programmeIn May 1999, the Government established a programme of Kingdom of Spain guarantees

for SME securitisations, which facilitates true sale transactions of pools. The aim of the

originators is cheaper funding rather than capital relief and the guarantee by the Kingdomof Spain significantly lowers the overall funding costs for the originator.

Using the following standard assumptions:

Portfolio Assumptions

Minimum Rating single borrower B

Secured loans/ Collateral in % of Portfolio 50%

Number of loan contracts 5000

Maximum Single Borrower concentration


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In addition, underwriting and placement fees also depend on the pool rating, because they

are lower for senior tranches and higher for junior tranches:

Pool Size Pool Rating BB+ Pool Rating BB- Pool Rating BBB-

500 Mio.! 3,4 bp 4,6 bp 3,0 bp

1.000 Mio.! 3,2 bp 4,4 bp 2,8 bp3.000 Mio.! 2,8 bp 4,0 bp 2,4 bp

Finally, all-in costs p.a. over 3-mth Euribor (not including servicing fees that can be

assumed to be identical with/ without securitisation) are presented in the table below:

Pool Size Pool Rating BB+ Pool Rating BB- Pool Rating BBB-

500 Mio.!

106 bp 155 bp 88 bp1.000 Mio.! 102 bp 152 bp 85 bp

3.000 Mio.! 100 bp 149 bp 82 bp

In a typical FTPYME transaction, the guarantee by the Kingdom of Spain covers ca. 25% of

the AAA tranche and the spreads on guaranteed tranches are about 3 bp. (lower risk

premium and zero risk weight under Basel 1 and 2), thereby reducing the overall funding

f h i i b d 5 b


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annual turnover of 30 Mln, the recovery rate is 50% and maturity 5 years,

we come up with the following figures:

Basel II Capital %

Pool Rating BB+ BB- BBB-

1-yr Avg Default Probability assumed 0,70% 1,70% 0,44%

On balance 8,9% 11,3% 7,6%

After securitisation (First Loss Retained) 4,1% 7% 3,1%

Capital relief 4,8% 4,3% 4,5%

The table shows that securitisation will lead to a substantial reduction of capital under

Basel 2 for all three types of portfolios.

2.4.2EIF guaranteesThe EIF guarantees can be used for granular and non granular SME pools and True Sale as

well as synthetic transactions at almost all levels of the capital structure, from AAA down to

B+. Mezzanine tranches wrapped by the EIF can be sold to investors at significantly lower

spreads (lower risk premium as the EIF AAA rated and 20% risk weight under Basel 1 and

i k i h d B l 2)


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2.4.3Portuguese Securitisation SchemeIn Portugal, the public fund created to support securitisation of SME loans is the FGTC

(Fundo de Garantia de Titularizao de Crditos). FGTC intervenes by guaranteeing SME

securitization transactions, either through a direct support to the credits securitized or

through a support to the notes backed by this type of credits.

Douro SME Series 1 has been the first Portuguese transaction to benefit from the support

of FGTC which guarantees the payment of principal of an unrated class of notes that have

been subscribed by the originator.

FGTC guarantee has been formalised in a bilateral agreement between the originator and

FGTC and is not part of the public transaction documents. So, as we do not have any

information regarding fees charged by the FGTC, it is impossible to calculate a quantitative

effect.

However, if the FGTC charges a fee that is below the commercial premium, there is a

b i l d f h i i F i if h FGTC


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Tranche Rating Pool Rating BB+ Pool Rating BB- Pool Rating BBB- Spreads

Super Senior 82,4% 76,4% 84,9% 7 bp

AAA/Aaa 10,0% 11,0% 9,0% 35 bp

AA/Aa2 0,5% 1,1% 0,5% 45 bp

A/A2 0,5% 0,8% 0,6% 60 bp

BBB/Baa2 1,2% 1,9% 0,8% 100 bp

BB/Ba2 1,3% 1,8% 1,1% 400 bp

First Loss 4,1% 7,0% 3,1% 1600 bp

One important advantage of using the KfW platform is the zero risk weighting of KfW.

Because of the zero risk weighting, the credit default swap with KfW significantly reduces

the capital the originator has to hold for the portfolio after the synthetic securitisation. If the

originator would use a different bank credit default swap counterparty, the risk weight on

the Super Senior credit default swap would be 20% under Basel 1 (assuming thatmezzanine tranches are fully funded and that the first loss piece is retained by the

originator). Therefore, the advantage from the originators point of view is:

Under Basel 1:

Super Senior * (20%-0%) * 8% * Cost of Capital (net of Capital Benefit)

f ( ) C f C %


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investors and KfW executes a CDS on the Super Senior with a suitable counterparty (20%

weighted OECD bank). As a consequence, KfW has to hold capital against counterparty

risk. KfW charges a commercial fee for its services and, in particular, for the capital

commitment, and this fee must be subtracted from the benefits mentioned above. Since

these benefits depend on the originators Cost of Capital, it is quite difficult to quantify the

net effect (it will be substantial for a bank with high Cost of Capital, but negligible for abank with low Cost of Capital).

To summarise, there seems to be an advantage for some originators to use the PROMISE

platform. However, similar to the EIF case, the advantage depends on the originators

internal Cost of Capital.

Therefore, maybe other qualitative factors are more important and may induce substantial

cost savings for originators:

The standardisation of the PROMISE structure (use of KfW certificates as

collateral, documentation etc.) leads to lower transaction costs (Rating

agencies, lawyers etc.). Obviously, this effect is more important for small

pool sizes where transaction costs are higher. KfWs experience shows that

transaction costs can be 30%-50% lower for PROMISE deals compared to

other non platform deals. So for a small transaction (500 Mln. Pool size)


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3Standardisation of SME Securitisation Transactions

The AMTE Working Group on SME securitisation has developed a standard format of datato help banks prepare for transactions and for ease of reporting. Based on the different

requirements for origination and monitoring, the workshop focuses on two specific aspects

of a transaction.

The first aspect relates to the standardisation of transactions through the originators

databases usually required, which aims to develop a consistent SME framework and a

standard set of quantitative information required by rating agencies.

The second aspect applies to the standardisation of investors information, which aims to

develop a consistent set of information for transaction management phase and for investor

reports.

3.1Standardised Originators Data required for an SME securitisation


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from a mapping of the originators credit scoring system or by using the rating agencies

country specific credit models based on selected financial data of borrowers.

In addition to the individual rating, the static data to be provided on a name by name basis

by an originator for a SME securitisation of a non granular portfolio are presented in Annex

6.3.1.

3.1.2Granular PortfolioIn the case of a sufficient granular and homogeneous pool of assets, an ABS rating

methodology will be performed in addition to the usual qualitative due diligence. The ABS

approach will be based mainly on satisfactory (i) historical data provided by the originator

and (ii) detailed information on the portfolio to be securitised.

3.1.2.1 Static Data

The static data set corresponds to the snapshot of the portfolio containing the SME loans

to be securitised. It will be used to build distribution tables of the eligible portfolio.

The static data to be provided by an originator for a SME securitisation of a granular


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For example, investors would like to have more often information about the breakdown of

the securitised portfolio

by industrial sectors,

by geographical (region) and,

by turnover range.

The standardised investor report to be produced for a SME securitisation is presented in

Annex 6.4.


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4Achieved consensus and Recommendations

4.1Increasing efficiency of public sector intervention by catering the originators

needs

The SME lending market is facing some regulatory challenges with the Basel II

implementation and its impact in terms of further growth is very difficult to assess due to

the heterogeneity of the SME asset class.

However, it is apparent that public sector activity has been successful in stimulating SME

securitisation. Indeed, the success of recent issues can be attributed to the role of publicsector agencies as demonstrated by the issuance volume in the countries where incentive

programmes have been established (approximately 60% of SME European securitisation

has occurred when cost saving enhancements from public sector agencies are available).

In the last few years, SME loan portfolios were securitised in a number of European

countries, amongst others in Germany, Spain, the UK, Switzerland, Portugal, Italy, the

Netherlands, Poland, Finland and the Czech Republic. Support as deal facilitators by a


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providers like rating agencies, legal advisors and investment banks to work

more efficiently as they become familiar with the details of the platform.

Public platforms can thus exploit economies of scale, and securitisation can

become economically more attractive to a wider range of potential market

participants. The cost saving argument is of special importance for

originators who conduct their first transaction and for originators with

smaller portfolios.

When standardised platforms require a high level of quality, with respect to

reporting standards, this sends a positive signal to investors and contributes

to liquidity. Successful examples in this context are KfWs PROMISE

platform and the Spanish FTPYME-Program, which both contributed

decisively to the securitisation of SME loans.

A further starting point for public support is to act as risk takers. Precisely,

public entities invest in subordinated tranches. This support is particularly

necessary in transactions which are difficult to securitise, e.g. transactions

with new asset classes and/ or portfolios with low granularity. Public

investment enhances the attractiveness of the whole transaction, as

investors feel more comfortable with participation of key investors. The


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4.2Promotion of standardised data

The heterogeneity issue of SME portfolios has been raised and a move towards a greater

standardisation of data is likely to develop further this asset class. Moreover, financial

statements transparency is essential in the efficiency of portfolio selection process andshould be promoted in order to improve risk analysis and therefore investors appetite.

Based upon discussions among group members, the AMTE working group has built a

standard format for originators data and investors reporting. In addition to these

templates, the AMTE working group recommends the following solutions to reach the level

of standardisation required:

Data transparency improvement through financial disclosure and individual

electronic data to be gathered and monitored with an annual frequency at

least. The last three years financial statements of the borrower are often

required in the case of a non granular portfolio.

Identification of consistent SME portfolios in the originators database using

more accurate criteria (e.g. Basel II definitions) and other key parameters


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5Action Plan

5.1Communication to third parties

Circulation of the report to relevant parties.

In addition, the group wishes to create a dialogue with entities influent on the topic, such

as:

CESR

ECB

EFAMA European Commission

FSA

National banking federations (France, Germany, Spain)

Associations dealing with securitisation such as the European Securitisation

Forum

5.2Report promotion: Participation in future events


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6Annexes

Annex 6.1: AMTE Working Group Composition

Annex 6.2: Results of the AMTE Pan European Survey

Annex 6.3: Standardised Originators Data required for an SME securitisation

Annex 6.4: Standardised Investor Report for an SME securitisation


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Annex 6.1: AMTE Working Group Composition

Members:

Corinne Lambert AMTE

Valrie Blanchin AMTE

Nathalie Esnault Calyon

Romain Munera CAAM

Olivier Amblard EIF

Alessandro Tappi EIFFabrice Garnier HSBC

Maxime Stevignon JP Morgan

Dr. Dieter Glder represented by Dr. Omar Rann KfW

Anke Brenken KfW

Cornelia Lamers KfW

Bruno de Pampelonne Merrill Lynch

Michel Madelain Moodys


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Annex 6.2: Results of the AMTE Pan European Survey

Questions regarding portfolio of SME loans

How would you qualify the level of diversification of your SME loans portfolio?

1= Good 2= Average 3= Insufficient

OverallNumber %

"1" - Good 29 66%

"2" - Average 14 32%

"3" - Insufficient 1 2%

Total 44 100%

In terms of exposure to single namesNumber %

"1" - Good 35 80%

"2" - Average 8 18%

"3" - Insufficient 1 2%


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Present and future SME lending

Do you feel constrained in your SME lending by any of the following factors?

Risk exposure

Number %

Yes 15 34%

No 29 66%

Total 44 100%

Regulatory capital weightingNumber %

Yes 12 27%

No 32 73%Total 44 100%

ConcentrationNumber %

Yes 10 23%

No 34 77%

Total 44 100%


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Perception and knowledge of securitisation and public sector initiatives relating to

the latter

Have you previously securitised assets in general?Number %

Yes 20 45%

No 24 55%

Total 44 100%

Have you planned to securitise SME loans?Number %

Yes 19 43%

No 25 57%

Total 44 100%

Are you aware of any public initiatives aiding SME securitisation?Number %

Yes 14 32%

No 30 68%


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Provides cost-effective fundingNumber %

"1" 7 23%

"2" 9 30%

"3" 10 33%"4" 4 13%

Total 30 100%

Provides cost-effective regulatory capital reliefNumber %

"1" 7 23%

"2" 9 30%

"3" 9 30%

"4" 5 17%

Total 30 100%

Whether or not you have used, or simply plan on using, SME securitisation, what do you

view as the main difficulties tied to such transactions?

(1= highly pertinent, 5= not pertinent).


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Availability of IT systems to produce necessary dataNumber %

"1" 4 11%

"2" 11 29%

"3" 9 24%"4" 9 24%

"5" 5 13%

Total 38 100%

Costs of securitisation are too highNumber %

"1" 6 16%

"2" 15 41%

"3" 10 27%

"4" 4 11%

"5" 2 5%

Total 37 100%


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Supporting SME Financing using Securitisation Techniques 39

Annex 6.3: Standardised Originators Data required for an SME securitisation

6.3.1 Static Data for both Non Granular and Granular Portfolio

Field Number Field Name Field Definition

1 Current Date Date at the time of data extraction

2 Company Iden tif icat ion Number The company ident if ica tion number de te rm ined by the count ry's regula to r

3 Company Group name The company group name if the company is a subsidiary of a larger group

4 Company Recording Date Date at the time of the company's first identification to the originator

5 Country Code Country code or country name of the company / subsidiary to which the loan has been granted

6 Industry Sector Industry sector corresponding to the main business activities of the company

7 Geographical Region / Postcode Geographical region as defined by the country's administration or postcode of the company's headquarters

8 Company score Company score or rating if any, set by the originator based on its internal scoring system


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Field Number Field Name Field Definition

9 Initial Date Date at the time the loan has been granted

10 Initial Outstanding Balance Initial outstanding balance of the loan at the initial date

11 Current Outstanding B alance Current outstanding balance at the current date

12 Currency Currency of the loan

13 Maturity Date Maturity Date of the loan defined at inception

14 Fixed Interest Rate Fixed interest rate compounded annually used to calculate the interest payment of the loan

15 Floating In te rest Marg in Float ing in te rest margin ove r the interest ra te index if the loan has a va riable in te rest ra te

16 Interest Rate Index Interest rate index or market benchmark rate used as floating interest rate basis

17 Payment Frequency Payment frequency of instalments during the loan amortisation

18 Amortisation Type Linear / Bullet / Specific Amortisation

19 Loan Seniority Rank of the loan in the priority order of payment (Senior Secured/Unsecured, Subordinated)

20 Loan Security Type Nature of the loan security (mortgage, pledge)

21 Loan Collateral Type Nature of the loan collateral (real estate, securities)

22 Loan-To-Vaue Ratio of the loan outstanding amout to the value of the guarantee

23 Originator Loan Share Originator's share of the loan securitised


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6.3.2 Historical Data for a Granular Portfolio

Cumulated Gross Default Rate

For a generation of loans (being loans originated during the same quarter), the cumulative gross default rate in respect of a month is

calculated as the ratio of:

- the cumulative defaulted amount (the total outstanding amounts of the loans that have defaulted) recorded between the month when

such loans were originated and the relevant month, to

- the initial outstanding amount of such loans

The definition of the default used by the originator has to be provided.


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Nu mb er of quarters after origination

Quarter of

Origination

Originated

Amount1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

2001 - Q2 350 120 000 0.0% 0.5% 1.7% 3.2% 4.1% 4.7% 5.1% 5.2% 5.3% 5.4% 5.6% 5.6% 5.6% 5.8% 5.8% 5.8%

2001 - Q3 401 740 000 0.0% 0.3% 1.3% 2.2% 2.9% 3.4% 4.4% 4.3% 4.4% 4.6% 4.8% 5.1% 5.1% 5.2% 5.2%

2001 - Q4 398 070 000 0.0% 0.5% 2.0% 3.7% 4.7% 5.4% 5.9% 6.0% 6.1% 6.2% 6.4% 6.4% 6.4% 6.6%

2002 - Q1 304 460 000 0.0% 0.4% 1.6% 2.9% 3.8% 4.3% 4.7% 4.8% 4.8% 4.9% 5.1% 5.1% 5.1%

2002 - Q2 349 340 000 0.0% 0.3% 1.4% 2.3% 3.1% 3.6% 4.7% 4.6% 4.6% 4.9% 5.0% 5.3%

2002 - Q3 346 150 000 0.0% 0.3% 1.4% 2.4% 3.1% 3.5% 3.9% 4.0% 4.1% 4.2% 4.9%

2002 - Q4 361 740 000 0.0% 0.3% 1.0% 1.8% 2.4% 2.5% 3.1% 3.2% 3.5% 4.0%

2003 - Q1 295 420 000 0.0% 0.3% 0.9% 1.6% 2.3% 2.6% 2.8% 3.0% 3.1%

2003 - Q2 378 270 000 0.0% 0.2% 0.9% 1.4% 1.8% 2.1% 2.2% 2.4%

2003 - Q3 393 980 000 0.0% 0.3% 0.9% 1.5% 1.5% 1.6% 1.7%

2003 - Q4 436 130 000 0.0% 0.2% 0.8% 1.0% 1.0% 1.3%

2004 - Q1 391 170 000 0.0% 0.3% 0.7% 0.9% 1.4%2004 - Q2 435 430 000 0.0% 0.2% 0.2% 0.3%

2004 - Q3 394 170 000 0.0% 0.2% 0.3%

2004 - Q4 422 290 000 0.0% 0.1%

2005 - Q1 199 620 000 0.0%


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Cumulated Recovery Rate

For a generation of defaulted loans (being loans defaulted during the same quarter), the cumulative recovery rate in respect of a month is

calculated as the ratio of:

- the cumulative recoveries recorded between the month when such loans were defaulted and the relevant month, to

- the gross defaulted amount of such loans

The definition of the timing and the amount of the recovery used by the originator has to be provided.

Nu mber of quarters after default

Quarter of

Default

Defaulted

Amount1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

2001 - Q2 15 900 000 0.0% 53.1% 55.8% 58.5% 61.2% 63.9% 66.6% 69.3% 72.0% 74.7% 77.5% 80.2% 82.9% 85.6% 88.3% 91.0%

2001 - Q3 17 580 000 0.0% 52.8% 55.1% 57.5% 59.8% 62.2% 64.6% 66.9% 69.3% 71.6% 74.0% 76.4% 78.7% 81.1% 83.4%

2001 - Q4 18 220 000 0.0% 47.4% 50.9% 54.3% 57.7% 61.2% 64.6% 68.0% 71.5% 74.9% 78.3% 81.8% 85.2% 88.6%

2002 - Q1 17 040 000 0.0% 52.8% 55.0% 57.1% 59.2% 61.4% 63.5% 65.7% 67.8% 69.9% 72.1% 74.2% 76.4%

2002 - Q2 19 540 000 0.0% 53.1% 56.8% 60.6% 64.3% 68.0% 71.7% 75.4% 79.1% 82.9% 86.6% 90.3%

2002 - Q3 19 780 000 0.0% 45.3% 48.9% 52.6% 56.3% 60.0% 63.7% 67.4% 71.1% 74.7% 78.4%

2002 - Q4 21 120 000 0.0% 45.4% 49.3% 53.2% 57.1% 61.0% 64.9% 68.8% 72.7% 76.6%

2003 - Q1 22 620 000 0.0% 46.8% 51.2% 55.5% 59.9% 64.3% 68.6% 73.0% 77.3%

2003 - Q2 21 800 000 0.0% 54.2% 58.1% 62.1% 66.0% 70.0% 73.9% 77.8%

2003 - Q3 23 520 000 0.0% 60.1% 65.2% 70.3% 75.3% 80.4% 85.5%

2003 - Q4 20 240 000 0.0% 56.1% 62.9% 69.6% 76.4% 83.1%

2004 - Q1 18 500 000 0.0% 62.8% 71.1% 79.3% 87.6%

2004 - Q2 18 160 000 0.0% 56.8% 71.3% 85.8%

2004 - Q3 17 920 000 0.0% 59.7% 93.8%

2004 - Q4 17 500 000 0.0% 45.5%

2005 - Q1 17 680 000 0.0%


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Prepayment Rate

At a given month, the annual prepayment rate (APR) is calculated

from the monthly prepayment rate (MPR) according to the

following formula:

APR = 1 - ( 1- MPR )^12

The monthly prepayment rate (MPR) is calculated as the ratio of:

- the outstanding principal balance of all loans prepaidduring the month, to

- the outstanding principal balance of all loans (defaulted

loans excluded) at the beginning of the same month

Month Oustanding

2001 - 06 1 706 200 000

2001 - 09 1 739 050 000

2001 - 12 1 732 570 000

2002 - 03 1 752 440 000

2002 - 06 1 785 680 000

2002 - 09 1 824 000 000

2002 - 12 1 873 380 000

2003 - 03 1 874 050 000

2003 - 06 1 919 470 000

2003 - 09 1 985 690 000

2003 - 12 2 079 310 000

2004 - 03 2 148 850 000

2004 - 06 2 240 430 000

2004 - 09 2 292 010 0002004 - 12 2 356 990 000

2005 - 03 2 350 580 000

12.0%

10.7%

12.8%9.8%

11.4%

11.4%

13.4%

12.4%

13.3%

12.9%

14.6%

12.8%

13.5%

15.0%

11.8%

13.3%

Annual Prepayment Rate


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Delinquency Rate

At a given month, the delinquency rate is calculated as the ratio

of:

- the outstanding principal balance of all delinquent loans,

to

- the outstanding principal balance of all loans (defaulted

loans excluded) at the same cut-off date

Month 1 Month 2 M onths 3 M onths 4 M onths 5 M onths 6 M onths

juin-01 1.3% 0.6% 0.3% 0.1% 0.1% 0.1%

juil-01 1.2% 0.5% 0.2% 0.1% 0.1% 0.1%

aot-01 1.0% 0.6% 0.2% 0.1% 0.1% 0.1%

sept-01 1.3% 0.6% 0.3% 0.2% 0.1% 0.1%

oct-01 1.4% 0.6% 0.3% 0.2% 0.1% 0.1%

nov-01 1.0% 0.6% 0.3% 0.2% 0.1% 0.1%

dc-01 0.9% 0.5% 0.2% 0.1% 0.1% 0.1%

janv-02 1.5% 0.6% 0.2% 0.1% 0.1% 0.1%

fvr-02 1.4% 0.5% 0.4% 0.1% 0.1% 0.1%

mars-02 1.3% 0.5% 0.2% 0.1% 0.1% 0.1%

avr-02 1.2% 0.4% 0.2% 0.1% 0.1% 0.0%

mai-02 1.1% 0.4% 0.2% 0.1% 0.1% 0.1%

juin-02 1.1% 0.4% 0.1% 0.1% 0.0% 0.0%

juil-02 1.1% 0.3% 0.1% 0.1% 0.0% 0.0%aot-02 1.0% 0.3% 0.1% 0.1% 0.0% 0.0%

sept-02 1.1% 0.4% 0.2% 0.1% 0.0% 0.0%


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Annex 6.4: Standardised Investor Report for an SME securitisation

Investor Report Issue Date

Issue Date

Accrual Period [Start and include]Actual Number of Days

Reference Date

Report Date

Calculation Date

Revolving Period YES/NO ?

Acceleration Event YES/NO ?

Amortisation Event YES/NO ?

Date and Transaction Status Information


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Original Current Legal Final Initial Current Rating

Class Balance % of Total Balance % of Total Maturity Rating Rating Review

Senior CDS (*) 1 425 000 95.0% 865 000 92.0% sept-15 Aaa/AAA Aaa/AAA YES/NO ?

Class A+ (*) 7 500 0.5% 7 500 0.8% sept-15 Aaa/AAA Aaa/AAA YES/NO ?

Class A 15 000 1.0% 15 000 1.6% sept-15 Aa2/AA Aa2/AA YES/NO ?

Class B 9 000 0.6% 9 000 1.0% sept-15 A3/A- A3/A- YES/NO ?

Class C 18 000 1.2% 18 000 1.9% sept-15 Baa3/BBB- Baa3/BBB- YES/NO ?Class D 9 000 0.6% 9 000 1.0% sept-15 Ba1/BB+ Ba1/BB+ YES/NO ?

Class E 6 000 0.4% 6 000 0.6% sept-15 Ba3/BB- Ba3/BB- YES/NO ?

Class F 3 000 0.2% 3 000 0.3% sept-15 B2/B B2/B YES/NO ?

Class G 7 500 0.5% 7 500 0.8% sept-15 NR/NR NR/NR YES/NO ?

Total 1 500 000 100.0% 940 000 100.0%

Key Transaction Data

Notes Summary (Amounts are in ! Mln)

(*) for a synthetic transaction

Default Ratio

Cumulative aggregate Principal Outstanding Balance of all Purchased Receivables became Defaulted Receivables from Closing Date

Aggregate Principal Outstanding Balance of all Purchased Receivables on Closing Date

Default Trigger Level for Amortisation Event at the Relevant Calculation Date

Default Trigger Level for Acceleration Event at the Relevant Calculation Date


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Delinquency Ratio

Overdue Principal Outstanding Balance of all Purchased Receivables which are Delinquent Receivables

Performing Receivables Principal Balance

Delinquency Ratio Trigger

Prepayment Rate

Cumulative aggregate Prepayments of the last Collection Period

Aggregate Principal Outstanding Balance of all Purchased Receivables on Closing Date

Summary of Portfolio Characteristics

At closing At reference Date

Number of Loans

Number of Obligors

Minimum Loan Size

Maximum Loan Size

Average Loan Size

Outstanding Balance % out of total Originator's Pool

Outstanding Balance % out of Securitised Pool

Outstanding Balance (in! Mln)

Average Outstanding Balance per Contract (in ! Mln)


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At closing At reference Date Trigger levels

if any

Receivables Secured by First Ranking Real Security

Weighted Average Loan to Value of all SME loans benefiting from a First Ranking Real Security

Loans unsecured or guaranteed only by a Generic Security

Weight of Receivables with Fixed Interest Rate

Weighted Average Interest Rate if Fixed (%)

Weighted Average Margin if Floating (%)

Weighted Average Spread of SME loans

Max Weight of All Purchased Receivables of a Single BorrowerWeight of Top Ten Borrowers Purchased Receivables

Weight of the Non-Amortising Receivables with Remaining Term > 1 year

Weight of Receivables with Quarterly (or less) Interest Instalments

Weighted Average Original Term (in months)

Weighted Average Remaining Term (in months)

Weighted Average Seasoning (in months)


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Cash Flows and possible Replenishment Amounts

Collection Period

Purchase Condition

Interest Collections

Interest in respect of late payments

Amounts to be Received under the Hedge Agreement

Recoveries from Defaulted Receivables

Collections on Overdue Principal Instalments

Interest accrued on the Transaction Accounts

Overdue Principal Instalments

Principal outstanding balance of Receivables which became defaulted

less the Principal instalments of of these receivables already taken into account on previous Calculation Dates

Revenue Shortfall (if any) calculated on the last Payment Date

Receivables Principal Amortised Amount

Scheduled Principal Collections

Principal instalments prepaid

Principal outstanding balance of Receivables which became defaulted during the Collection Period

less the Principal instalments of these receivables already taken into account on previous Calculation Dates

Replenishment Amount if any

Excess Available Principal Amount


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Issuer Available Funds

Amounts standing to the credit of the Transaction Accounts

less amounts on the Hedge Collateral Account or any Witheld Amount

less amount on the Excess Available Principal Account if Purchase Condition = N

less the Minimum Cash Reserve Amount

Collections

Interest received in respect of Autorised Investments

Amount received from the Originator in respect of re-assignment of Receivables

Proceeds of sale of any Receivables under the Transaction Documents

Interest earned on the Transaction Accounts other than the Hedge Collateral Account

Amounts received by the Issuer under the Transaction Documents

Amounts to be received under the Hedge Agreement


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Months after the Principal Interest Outstanding

Reference Date Instalments Component Component Balance

1 month

2 months

3 months

4 months5 months

6 months

7 months

Collateral Level Information

Theoretical Amortisation Schedule assuming 0% prepayments and 0% defaults


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Months after the Principal Interest Outstanding

Reference Date Instalments Component Component Balance

1 month

2 months

3 months

4 months

5 months

6 months

7 months

Theoretical Amortisation Schedule in a base case scenario

Initial Rating Current Rating

Originator

Servicer

Third Parties Ratings


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Interest Rate Type At closing % of Total At reference Date % of Total

Floating

Fixed

Capped

Breakdown of the Pool Outstanding Balance by Interest Rate Type

Loan Type At closing % of Total At reference Date % of Total

Amortising

Revolving

Bullet

Breakdown of the Pool Outstanding Balance by Loan Type

Redemption Type At closing % of Total At reference Date % of Total

Direct Debit

Breakdown of the Pool Outstanding Balance by Redemption Type


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Securities At closing % of Total At reference Date % of Total

Mortgage

Personal Guarantee

Banking Deposit

Pledge on shares

Breakdown of the Pool Outstanding Balance by Securities

Sector At closing % of Total At reference Date % of Total

Aerospace & Defense

Air transport

Automotive

Electronics

Equipment leasing

Industrial Equipment

Insurance

Utilities

(*) Sectors of activities defined according to a Rating Agency split

Breakdown of the Pool Outstanding Balance by Sector of Activities (*)


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Region At closing % of Total At reference Date % of Total

Region 1

Region 2

Region 3

Breakdown of the Pool Outstanding Balance by Geographical Region

Turnover At closing % of Total At reference Date % of Total

< 1,000,000

1,000,000


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Internal Score At closing % of Total At reference Date % of Total

1

2

10

Breakdown of the Pool Outstanding Balance by Internal Rating

Borrower ID At closing % of Total At reference Date % of Total

1- Borrower 159

2- Borrower 16

3- Borrower 147

10- Borrower 278

Concentration: 10 biggest borrowers of the pool


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Number of Employees At closing % of Total At reference Date % of Total

< 10

10


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Relation Age At closing % of Total At reference Date % of Total

0 - 3

4 - 6

7 - 10

11 - 15

> 15

Breakdown of the Pool by Relation Age between the SME and the Originator (in Years)

Performance of the Underlying Pool

Original Pool

The tables presenting the original pool performance for a granular portfolio are included in the quantitative due diligence report. Please refer

to the 2.2 historical data section of the Standardised Originators Data.

Securitised Pool / Transaction Performance

The tables presenting the actual performance of the securitised pool for a granular portfolio should be reproduced on the same basis than the

tables for the original pool.

Supporting SME Financing using Securitisation Techniques

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