Dear,
In this post, we’re going to see how to manage a securitization process with SAP Banking. This process is very well supported by SAP components; but unfortunately, with limited market recognition.
For those who are not familiar with the process; Securitization is the financial practice by financial institutions, like banks or leasing companies, of pooling various types of assets (mortgages, leases, credit card debt obligations, etc.) and selling said consolidated debt as securities to the investors. The asset pool serves as collateral of the securities sold to investors.
The investors strongly demands full transparency of the asset pool, because the value of the security depends only on the value of the asset pool. Therefore a very complex so called investor reporting is needed periodically. The principal and interest on the debt, underlying the security, is paid back to the investors regularly according the calculations in the investor reporting, esp. the payment report.
The issue of the securities is normally done by a separated legal entity called Special Purpose Vehicle (SPV). The purpose of the SPV is to separate the underlying asset pool from the other assets on the balance sheet of the financial institution (Originator) and to issue the asset-backed securities, which are assigned to tranches with different ratings.
The first step of the process is the selection of qualified assets for example Loans which are going to be securitized and building the pool of Loans. This process is managed by the Funding Management Solution of SAP. On this solution we have tools for adding eligible Loans to the pool, structure the pool according concentration limits within the pool, calculating the Net Present Value of candidates Loans to be securitized, building the pools, even with different ratings and preparing the transfer of the ownership of the pools to the SPV. Challenge for example is to optimize the pool in that way the financial institution is able to sell as much as possible without violation of the investor requirements on the underlying asset pool.
The second step of the securitization process is the issue and trade of the securities. The Special Purpose Vehicle can use the Transaction Manager module of ECC-Treasury and Risk Management for covering this step.
The third steps is the distribution of the borrowers’ payments to the pool of loans and transfer them to the Special Purpose Vehicle. This step is fully covered by the Funding Management solution of SAP Banking, including special cases of pool Loans with different ratings and priorities like cash waterfall.
The fourth step is the payment of interests by the securities according the payment distribution information provided by Funding Management in the third point. This is not a standard SAP integration but we’re working with TXS on developing this integrated scenario.
The last step is the periodically reporting to the investors. SAP Funding Management provides a reporting engine including prepared templates to build up such an investor reporting. During the whole process there’s a cross requirement of providing the Financial Statements of the loans pools (including Probability of Defaults, Liquidity Analysis, Market Value, etc.). The Credit Risk Analyzer, Accounting for Financial Instruments and Profit Analyzer module of Bank Analyzer are very useful at this stage. The integration of these modules with Funding Management is not out-of-the-box but we’re also working with TXS on it.
Finally, let me take this opportunity to thank Frank Zeidler and Benjamin Schneidereit from TXS GmbH for their support in the preparation of this post and their detailed technical explanations about Funding Management 2.0
Looking forward to read your opinions.
K. Regards,
Ferran.
In this post, we’re going to see how to manage a securitization process with SAP Banking. This process is very well supported by SAP components; but unfortunately, with limited market recognition.
For those who are not familiar with the process; Securitization is the financial practice by financial institutions, like banks or leasing companies, of pooling various types of assets (mortgages, leases, credit card debt obligations, etc.) and selling said consolidated debt as securities to the investors. The asset pool serves as collateral of the securities sold to investors.
The investors strongly demands full transparency of the asset pool, because the value of the security depends only on the value of the asset pool. Therefore a very complex so called investor reporting is needed periodically. The principal and interest on the debt, underlying the security, is paid back to the investors regularly according the calculations in the investor reporting, esp. the payment report.
The issue of the securities is normally done by a separated legal entity called Special Purpose Vehicle (SPV). The purpose of the SPV is to separate the underlying asset pool from the other assets on the balance sheet of the financial institution (Originator) and to issue the asset-backed securities, which are assigned to tranches with different ratings.
The first step of the process is the selection of qualified assets for example Loans which are going to be securitized and building the pool of Loans. This process is managed by the Funding Management Solution of SAP. On this solution we have tools for adding eligible Loans to the pool, structure the pool according concentration limits within the pool, calculating the Net Present Value of candidates Loans to be securitized, building the pools, even with different ratings and preparing the transfer of the ownership of the pools to the SPV. Challenge for example is to optimize the pool in that way the financial institution is able to sell as much as possible without violation of the investor requirements on the underlying asset pool.
The second step of the securitization process is the issue and trade of the securities. The Special Purpose Vehicle can use the Transaction Manager module of ECC-Treasury and Risk Management for covering this step.
The third steps is the distribution of the borrowers’ payments to the pool of loans and transfer them to the Special Purpose Vehicle. This step is fully covered by the Funding Management solution of SAP Banking, including special cases of pool Loans with different ratings and priorities like cash waterfall.
The fourth step is the payment of interests by the securities according the payment distribution information provided by Funding Management in the third point. This is not a standard SAP integration but we’re working with TXS on developing this integrated scenario.
The last step is the periodically reporting to the investors. SAP Funding Management provides a reporting engine including prepared templates to build up such an investor reporting. During the whole process there’s a cross requirement of providing the Financial Statements of the loans pools (including Probability of Defaults, Liquidity Analysis, Market Value, etc.). The Credit Risk Analyzer, Accounting for Financial Instruments and Profit Analyzer module of Bank Analyzer are very useful at this stage. The integration of these modules with Funding Management is not out-of-the-box but we’re also working with TXS on it.
Finally, let me take this opportunity to thank Frank Zeidler and Benjamin Schneidereit from TXS GmbH for their support in the preparation of this post and their detailed technical explanations about Funding Management 2.0
Looking forward to read your opinions.
K. Regards,
Ferran.
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