Trends in the European securitization market - Q1 2022

Trends in the European securitization market – Q1 2022

In this article, we are going to review the main trends affecting the European securitization market during the first quarter of 2022. 

An upward trend for the first quarter of 2022

The European Securitisation market opened 2022 with healthy volumes, registering a total issuance of securitized products for EUR 64.3bn in the first quarter, which represents a sharp increase (+31.6%) compared to Q1 2021.

More broadly, Q1 2022 issuance volumes marked an upside trend compared to previous years’ first quarters, which were not affected by the Covid-19 pandemic.

Securitization market growth changes
Securitization market growth changes

Retention rate

Moving to the retention rate, which indicates the amount of securitization that “remains” on originators’ balance sheet, Q1 2022 shows an increase YoY.

Nonetheless, in this quarter the absolute amount of placed transactions has grown (+10%) and the retention rate appears to be aligned with the results of the previous years, confirming the ongoing downward trend that was halted only at the peak of the pandemic.

Based on AFME data
The absolute amount of placed transactions
The absolute amount of placed transactions

A comparison between Europe and the United States

Notwithstanding this positive trend, the EU securitization market appears to be significantly downsized compared to the US market, where USD 80.7 bn ABS products (-50.3% compared to Q4 2021) and USD 771.6 bn MBS products (-25.5% compared to Q4 2021) were issued in the first quarter of 2022. 

A look at the ESG securitization

A significant slowdown has been instead recorded in the European ESG securitization market, which totaled EUR 0.5 bn (stemming from a single Green RMBS deal), a decrease in terms of volume at nearly 55% compared to the Q1 2021 and at nearly 38% compared to the Q1 2020.

Green Bonds

A trend marked change also affected the remaining ESG Finance sector in Q1 2022 with Green Bonds -21.5%, Social Bonds -74%, and Sustainable Bonds -15.3% compared to Q1 2021. Conversely, European investors seem to have switched their investment preferences towards financial instruments that have a higher potential to increase the issuer’s spending on sustainable projects, such as the Sustainable-linked and Transition Bonds, which registered a +440% compared to the volume of Q1 2021. The latter has only partially compensated for the decrease in other categories, leading to an overall market contraction, also due to the lack of jumbo deals from the EU Commission.

Sustainability-linked Loans

Different from green bonds (in which the proceeds must be exclusively applied to finance or refinance, in part or in full, new or existing eligible projects that promote progress on environmentally sustainable activities), sustainability linked bonds’ proceeds are not ring-fenced to be applied towards green or sustainable purposes. Instead, SLBs have financial or structural characteristics that vary depending on whether the issuer meets certain pre-defined key performance indicators (KPIs), which are assessed against certain sustainability performance targets (SPTs).

Greenium (green premium)

Such a significant trend change might explain the “erosion” of the so-called greenium affecting the green bonds market, a topic that we already covered in the article “Greenium: challenges in the green bonds market”.

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