The South African securitisation market is expected to continue on an upward trend in 2012, with total issuance volumes anticipated at about R25 billion, as investor confidence in the instrument returns.
Securitisation, where the credit risk of a loan portfolio is sold to third parties, has been recovering gradually since the aftermath of the financial crisis in 2008. Issuance volumes in South Africa reached a peak of R40-billion in 2007, but then slumped to about R5-billion between 2008 and 2009. However, they started to recover from 2010 with issuance volumes reaching R10-billion in 2010 and are expected to reach R20-billion by the end of 2011.
Speaking on the sidelines at the 9th Annual South African Capital Markets Summit, Megan McDonald, Standard Bank Group's Head of Structured Capital Markets, said: "Despite the uncertainty caused by volatility in the global markets and the ongoing debt crisis in developed markets, the implementation of Basel III capital requirements as well as the diversification of asset classes used in securitisation will have a positive effect on the market. This is because Basel III will require banks to access more long-term funding and securitisation is one of the means by which the banks obtain such funding."
The proposed Basel III regulation will raise capital requirements for banks to strengthen the stability of the global financial system.
Ms McDonald says investor appetite and confidence in the local securitisation market is getting firmer when compared to other global markets, even though volume levels are expected to remain below those seen in 2007.
"Despite lower levels of liquidity in the market today when compared to pre-2008 levels, we will see some growth in volumes in the next two years, but will not reach the peaks of 2007. Standard Bank estimates that the total securitisation market for 2012 will be in the region of R25 billion. What is encouraging is the steady growth in demand for securitisation products since 2010, which has seen issuance volumes doubling every year since 2009."
Basel III capital requirements on banks will keep securitisation on the uptick as banks will need to find long-term exposure. Growth is also going to be dependent on the introduction of other asset classes as investors diversify their portfolios.
This year's Annual South African Capital Markets Summit is taking place in Cape Town until 11 November 2011. Standard Bank Group is the lead sponsor of the event.
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