IACPM survey underlines EU issuer dominance

SRT volumes increased by nearly a third in 2024, protecting €21.4bn of credit risk on €260bn of loans, according to the latest IACPM Global SRT Bank Survey. The survey shows that 51 financial institutions executed 127 SRT transactions last year, up from 96 and volumes of €18.7bn in 2023. A portion of the SRTs reference mortgage and retail loan portfolios, but the bulk of the transactions comprise junior tranches of corporate and SME loan pools.

The EU continued to dominate the SRT market in 2024, accounting for more than half of all SRTs issued globally. Cumulatively, dating from 2016 to the end of 2024, more than €370bn worth of underlying EU bank loans were covered by €32bn worth of first loss and mezzanine tranche protection.

North American SRT activity remained relatively stable last year, protecting nearly €17bn worth of junior tranches. A significant development brought to the market by these banks, and different from other jurisdictions, is their use of SRTs to release capital on underlying pools of residential mortgage and retail loans.

Meanwhile, the share of sustainability-linked trades - through underlying assets, use of proceeds and incentives in the deal structure - is also gradually increasing, mainly in Europe. Volumes in this segment reached 18% in 2024, up from 10% in 2023.

The IACPM survey indicates that SRT issuers, particularly in Europe, are turning more frequently to the specialised credit arms of non-life multiline insurance companies to provide protection on the growing diversity of underlying asset classes. In 2024, the number of unfunded insurance protections sold increased substantially, with 82 new subscriptions (versus 45 in 2023) on 54 bank securitisations (versus 30 in 2023).

The association notes that demand for SRT investment exceeded supply in 2024, which led to an observed decrease in credit spreads. It points out that overall growth in the market is limited by supply, since SRT transactions are complex and can be costly.

“More than ever, the robustness and resilience of the SRT market will depend on the existence of effective securitization standards for due diligence and disclosure and the professionalism and stability of the large pool of protection providers, acting as long-term partners of banks,” comments Som-lok Leung, executive director of the IACPM.

Corinne Smith