Over the past year, the European securitisation market has undergone some dynamic changes. The fourth quarter of 2022 was no exception as the market continued to adapt to ongoing economic developments and regulatory changes.
In this article article, we will delve into the main trends that have been affecting the European securitization market in the last quarter of 2022, and provide an overview of the overall market situation for the past year.
From total issuance to deal volumes per sector and geography, we will provide valuable insights concerning the current state of the European securitisation market and what can be expected for 2023.
2022 – FULL YEAR ISSUANCE REVIEW
Issuance reaches the Lowest Point Since 2014
Despite a strong start and end to the year, with robust results in the first and fourth quarters, the second and third quarters saw a drop in issuance, largely attributed to a combination of geopolitical instability, infation, and tightening of monetary policy by the European Central Bank.
The overall result for the year is a total of EUR 203 billion, -12.8% compared to the 2021 levels (AFME, 2023). The retention rate – the percentage of securitisation that originators are unable to place and, as a result, hold in their balance sheets – provides a means of evaluating the demand from investors and the impact that the ongoing crisis is having on the European Securitisation Market.
The retention rate in 2022 spiked to 61% , from the 46% recorded in 2021, making it the worst result since 2015. This indicates that the current crisis is having a significant effect on the market, as fewer securitisations are being placed among investors.
European placed issuance
ESG Securitisation Trends reflect the overall negative trend in the market
The uncertain environment is also affecting the ESG Securitisation market. The volume issued in 2022 (€1.2bn) represents a drastic drop compared to 2021 (€8bn). Nonetheless, the positive results of the last quarter, which registered an increase of 140% compared to the volumes issued in the previous three quarters, might signal a possible recovery for 2023.
European ESG Securitisation by country:
Volumes have picked up in the fourth quarter, but still trailing behind Q4 2021
In the fourth quarter of 2022, the European securitization market showed signs of recovery after a difficult year, with volumes picking up from the lows seen in Q2 and Q3.
Although Q4 2022 volumes marked a 34.7% decrease compared to the same period in 2021, the increase in issuance versus the two central is a promising recovery sign for the European securitization market, indicating a potential for continued growth and stability in the coming years.
European Securitization Issuance, by Quarter, Retained vs. Distributed, 2019 – 2022 (EUR bn)
The proportion of Simple, Transparent and Standardized (STS) securitizations was noticeably lower this year, reaching only 31.5% of total issuance compared to 45.6% in 2021. The low number of STS transactions, particularly compared to the expected EUR 150 billion by the European Commission, may indicate a lack of direct incentives from market participants. This could be a clear call for more attention from the regulators that need to properly address these concerns and change the current regulations.
Percentage of Total Issuance with STS Verification
There are also notable changes showing up when doing a mix comparison of the total issuance across sectors and countries. On the other side, when comparing EU and US Securitisation market, the later seems stuck in a downwards trend as of lately.
For a full overview and analysis of the total issuances across sectors in 2022 and the US Securitisations decrease, ask for your free copy of our European & UK Securitisation Market Q4 2022 Report:
You will also find included an expert-driven outlook for the 2023 Securitisation Market, along with key takeaways to consider for the future.
In conclusion, the European securitization market witnessed a challenging year in 2022 due to geopolitical instability, inflation, and tightening of monetary policy by the European Central Bank. The total issuance in 2022 reached EUR 203 billion, which is 12.8% less than 2021 levels. The retention rate also spiked to 61%, indicating the impact of the ongoing crisis on the market.
The ESG securitization market also witnessed a decline in volumes in 2022, although an increase of 140% was recorded in the fourth quarter, which may signal a possible recovery in 2023. The proportion of Simple, Transparent, and Standardized securitizations was lower in 2022, indicating a lack of direct incentives from market participants.
Finally, the mix of total issuance across sectors in 2022 saw notable shifts with RMBS rising to 52% of total issuance, while ABS volumes dropped, and CMBS issuance inched up.
If you want to be kept up to date with the latest trends and changes from the Private Credit Market, sign up for our newsletter, provided by our senior industry experts, using the form below.