1. Assessing securitisation activity in Portugal Compilation and measurement issues OECD Workshop on Securitisation, Madrid, 27-28 May 2010 Assessing securitisation activity in Portugal Compilation and measurement issues Ana M. de Almeida Statistics Department

2. Assessing securitisation activity in Portugal Compilation and measurement issues OECD Workshop on Securitisation, Madrid, 27-28 May 2010 2 Outline 1. Introduction 2. Legal framework 3. Key features of Portuguese securitisations 4. From raw data to statistics 5. Portuguese securitisations in numbers 6. Data dissemination and institutional reporting

3. Assessing securitisation activity in Portugal Compilation and measurement issues OECD Workshop on Securitisation, Madrid, 27-28 May 2010 3 Introduction Definition : Securitisation means a scheme whereby a pool of assets is transferred by its original holder to a Special Purpose Vehicle which issues debt securities or securitisation fund units and places them next to investors (normally institutional) to finance the assets’ acquistion Motivation includes funding diversification, credit risk mitigation, regulatory capital relief and interest rate instruments’ term structure management with a view to matching assets and liabilities Securitisation operations by Portuguese MFIs made their first appearance in 1997 ; use of offshore structures and range of asset classes restricted to consumers’ credit areas, cars acquisitions, leasing and long-term rentals

4. Assessing securitisation activity in Portugal Compilation and measurement issues OECD Workshop on Securitisation, Madrid, 27-28 May 2010 4 Legal framework Decree-Law No. 453/99 of 5 November (“Securitisation Law”) – Legal requirements applicable to loan securitisations – Constitution and functioning of securitisation vehicles (FTCs and STCs) Shortcomings – Minimum capital requirements applicable to the financial vehicles engaged in securitisations – Lack of a clear (and attractive) tax legal framework Decree-Law No. 219/2001 of 4 August (“Tax Securitisation Law”) – Removed withholding tax from Portuguese obligors’ payments to securitisation vehicles, and from the interest on paper issued by the latter Decree-Law No. 303/2003 of 5 December – Framework for securitising receivables held by the Portuguese State and other public entities and broadening the scope of securitisable assets

5. Assessing securitisation activity in Portugal Compilation and measurement issues OECD Workshop on Securitisation, Madrid, 27-28 May 2010 5 The Securitisation Law allows for two types of Financial Vehicle Corporations (FVCs): – Securitisation Companies ( Sociedades de Titularização de Crédito, or STCs ) – Securitisation Funds ( Fundos de Titularização de Crédi to, or FTCs ) Both kind of FVCs are supervised by the CMVM (the Portuguese securities market commission) CMVM grants activity permission and regulates the securitisation activity Legal framework

6. Assessing securitisation activity in Portugal Compilation and measurement issues OECD Workshop on Securitisation, Madrid, 27-28 May 2010 6 STCs are single purpose, limited liability companies, while FTCs structures are very similar to that of investment funds; initially, capital prerequisites of FTCs lower than the STCs ones STCs finance their activities by issuing equity and securitisation bonds – The issue of securitisation bonds, collateralised by securitised loans, is made by private or public placement in domestic and/or in foreign markets To finance loans acquisition FTCs issue securitisation units – Securitisation units are typically acquired by non-resident financial vehicles. FTCs act as closed entities, while STCs carry out several securitisation transactions over time Key features of Portuguese securitisations

7. Assessing securitisation activity in Portugal Compilation and measurement issues OECD Workshop on Securitisation, Madrid, 27-28 May 2010 7 Original debtor Original debtor Resident STC Resident STC Asset flows Monetary flows Originator Investors Simplifid scheme for a securitisation engaging a resident STC Key features of Portuguese securitisations Typical securitisation process involving an STC

8. Assessing securitisation activity in Portugal Compilation and measurement issues OECD Workshop on Securitisation, Madrid, 27-28 May 2010 8 Simplified scheme for a securitisation engaging a resident FTC and a non- resident FVC Original debtor Original debtor Resident FTC Resident FTC Originator Investors Non-resident FVC Asset flows Monetary flows Key features of Portuguese securitisations Typical securitisation process involving an FTC

9. Assessing securitisation activity in Portugal Compilation and measurement issues OECD Workshop on Securitisation, Madrid, 27-28 May 2010 9 Key features of Portuguese securitisations In the early days, off-balance sheet securitisations were the most widespread type of securitisation deals In 2005, started to change in favour of on-balance sheet recognition; actually, IAS 39 provided for two different treatments depending upon whether the originator retained control of the financial asset following transfer. Where control is retained (as will be the case in most securitisation transactions), the financial asset must be recognised to the extent of the reporting entity’s “continuing involvement”

10. Assessing securitisation activity in Portugal Compilation and measurement issues OECD Workshop on Securitisation, Madrid, 27-28 May 2010 10 Recording the two cases of traditional loan securitisations, involving Portuguese FVCs: – Off-balance sheet securitisations (loans derecognised): – On-balance sheet securitisations (loans not derecognised): Key features of Portuguese securitisations In the FVC’s balance sheet, loans are recorded vis-à-vis the original sector In the FVC’s balance sheet, loans are recorded vis-à-vis the originator’s sector (to circumvent double counting)

11. Assessing securitisation activity in Portugal Compilation and measurement issues OECD Workshop on Securitisation, Madrid, 27-28 May 2010 11 From raw data to statistics FVCs do not report statistical data to the Banco de Portugal ( BdP ) Both STCs and FTCs have to submit accounting data to the CMVM, for supervisory purposes – STCs report Audited annual balance sheets Semi-annual balance sheet data, in case they issue securities through public subscription or have quoted securities – FTCs report monthly data Formal agreement between BdP and CMVM

12. Assessing securitisation activity in Portugal Compilation and measurement issues OECD Workshop on Securitisation, Madrid, 27-28 May 2010 12 From raw data to statistics Credit Institutions and OFIs have to report data to the BdP for prudential supervision purposes – When these institutions are originators in a securitisation deal, BdP can recognize the nature of the securitisations being carried out MFI balance sheet data for statistical purposes – Enables the identification of the nature of the operation: off-balance sheet / on-balance sheet securitisations – and details for high statistical quality standards not covered by accounting data

13. Assessing securitisation activity in Portugal Compilation and measurement issues OECD Workshop on Securitisation, Madrid, 27-28 May 2010 13 From raw data to statistics To help identifying the counterpart of the securitised loans, namely in securitisations originated by Non-financial corporations, BdP uses: – Issuance prospectus – Rating agencies’ pre-sales information – FTC’s management rules and regulations

14. Assessing securitisation activity in Portugal Compilation and measurement issues OECD Workshop on Securitisation, Madrid, 27-28 May 2010 14 Securities Statistics Integrated System : – Security-by-security and investor-by-investor database – Information on all securities issued by Portuguese residents and securities held by Portuguese or foreign investors and kept in custody with resident financial institutions – Identification of the holders of the debt securities and other equity issued by the Portuguese FVCs Balance of Payments data : – Information on STC securitisation structures Identification of possible anticipated amortizations of the securities issued and placed abroad From raw data to statistics

15. Assessing securitisation activity in Portugal Compilation and measurement issues OECD Workshop on Securitisation, Madrid, 27-28 May 2010 15 From raw data to statistics Data flow Securities Statistics Integrated System Balance of Payments MFI balance sheet STC issuance prospectus / FTC Regulations Accounting data Accounting data Statistical Information Dissemination ECB report (Regulation ECB/2008/30) ECB report (Regulation ECB/2008/30)

16. Assessing securitisation activity in Portugal Compilation and measurement issues OECD Workshop on Securitisation, Madrid, 27-28 May 2010 16 Portuguese securitisations in numbers Aggregate balance sheet of Portuguese FVCs

17. Assessing securitisation activity in Portugal Compilation and measurement issues OECD Workshop on Securitisation, Madrid, 27-28 May 2010 17 Portuguese securitisations in numbers First securitisations: FTC in 2001; STC in 2003 By the end of 2009, number of FVCs in operation: – 52 (48 FTC and 4 STC) Activity : – Total outstanding loans securitised by Portuguese FVCs amounted to 48 billion euros (34 for FTC and 14 for STC) 79% correspond to mortgage credits originated by MFIs 10% - 15% correspond to loans originated by Non-financial corporations

18. Assessing securitisation activity in Portugal Compilation and measurement issues OECD Workshop on Securitisation, Madrid, 27-28 May 2010 18 Portuguese securitisations in numbers Proportion of total assets of FVCs on those of the Financial sector

19. Assessing securitisation activity in Portugal Compilation and measurement issues OECD Workshop on Securitisation, Madrid, 27-28 May 2010 19 Portuguese securitisations in numbers Loans’ counterparts, by institutional sector

20. Assessing securitisation activity in Portugal Compilation and measurement issues OECD Workshop on Securitisation, Madrid, 27-28 May 2010 20 Portuguese securitisations in numbers Holders of securities issued by STCS, by institutional sector

21. Assessing securitisation activity in Portugal Compilation and measurement issues OECD Workshop on Securitisation, Madrid, 27-28 May 2010 21 Data dissemination and institutional reporting The Statistical Bulletin of the BdP covers quarterly data since 2001 :

22. Assessing securitisation activity in Portugal Compilation and measurement issues OECD Workshop on Securitisation, Madrid, 27-28 May 2010 22 As regards the fulfilment of the reporting requirements set forth in Regulation ECB/2008/30, the Banco de Portugal has been submitting to the European Central Bank, since February 2010, harmonized data on the FVCs’ balance sheets Based on these statistical data, aggregated results are compiled for the following three sub-categories: (i) FVCs engaged in traditional securitisation; (ii) FVCs engaged in synthetic securitisation; and (iii) other FVCs Data refer to end-of-quarter outstanding amounts, and financial transactions are provided on a quarterly basis. Data dissemination and institutional reporting

23. Assessing securitisation activity in Portugal Compilation and measurement issues OECD Workshop on Securitisation, Madrid, 27-28 May 2010 Assessing securitisation activity in Portugal Compilation and measurement issues Thank you for your attention! Any questions?