Quality of asset-backed securities in the European market continues to improve as the new regulatory requirements are being structured more conservatively, according to a study by Swiss & Global Asset Management.
As per the latest regulatory requirements, asset-backed securities issuers must currently hold a minimum percentage of their securitised assets on their own balance sheet for the entire term, while ensuring greater transparency, reported hedgeweek.com.
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Furthermore, investors are analysing transactions more thoroughly rather than relying on agencies ratings alone, which led to fall in number of debt-financed market participants like banks in the ABS market.
The study also noted that demand among institutional investors continues to remain high primarily due attractive returns and strong structures of the asset class.
Swiss & Global was quoted by hedgeweek.com as saying that the European market for asset-backed securities has shrunk considerably since the financial crisis, and this trend is likely to continue.
"The drop in volume is due to stricter bank lending criteria as well as the reduced demand by consumers for car loans and real estate.
"New issues in Europe so far this year have amounted to 67bn, still markedly lower than in 2007 (325bn)," Swiss & Global added.
