Santander Blazes Foreign-Investor Trails With Zloty ABS

Banco Santander SA’s sale of zloty-denominated asset-backed securities targeted foreign buyers for the first time, clearing the way for more issuers seeking lower borrowing costs, according to Citigroup Inc.

Santander’s Polish unit sold 1.37 billion zloty ($452 million) of 2025 notes backed by auto and unsecured consumer loans to European investors on June 27, said Pawel Florkiewicz, a spokesman. The notes were issued with a smaller margin over interbank rates than the bank’s unbacked debt in 2013.

While Poland’s banking regulator has been recommending that lenders diversify their sources of financing to instruments including ABS, only one sale of such securities has taken place since 2008 because of the complexity of the transactions and limited demand. That will probably change as Santander’s offering builds momentum, said Maryla Posyniak at Citigroup.

“We see growing interest in securitization from banks” in Poland, Posyniak, the head of debt instruments at Citigroup’s Warsaw unit, which arranged Santander’s sale, said by phone July 7. “ABS aren’t easy deals. However, each new transaction increases recognition of this type of financing.”

Cheaper Financing

The ABS were sold in two tranches, with spreads of 75 basis points and 95 basis points above the one-month Warsaw interbank offered rate, which was 2.61 percent on June 27, Florkiewicz said. The weighted average maturity is 40 months for the auto-loan component and 18 months for consumer loans, Fitch Ratings said in a report on the notes.

That compares with the 170 basis points over six-month Wibor that Santander paid in October to sell zloty-denominated bonds due in 2017.

Getin Noble Bank SA was the only Polish issuer to sell a car loan-based security in the past six years with its 518.7 million-zloty transaction in October 2012. The lull of secured-debt offerings contrasts with European ABS sales amounting to 37.3 billion euros ($50.8 billion) this year, according to JPMorgan Chase & Co. data.

Wroclaw, Poland-based Santander Consumer Bank SA, which obtains 60 percent of its funding from client deposits and 17 percent from bond sales, turned to ABS to diversify its financing, Florkiewicz said in an e-mail to Bloomberg News yesterday.

Santander Consumer Bank’s clients had 13.2 billion zloty of loans at end of 2013, according to a presentation on its website. Car loans amounted to 16 percent of that portfolio.

Some 31 percent of loans extended by Polish banks mature in five years or longer, while only 27 percent of their liabilities are due in more than a year, data from the financial supervisor show.

Margin ‘Squeeze’

Europe’s $2 trillion ABS market has contracted 32 percent since 2009 as regulators cracked down on the debt, which they argue helped fuel the global financial crisis. European Central Bank President Mario Draghi said on June 5 the monetary authority will buy “simple and transparent” notes backed by non-financial private sector assets to boost lending.

“Expectations for ECB purchases create sizable demand for ABS abroad and help to squeeze margins,” Kamil Sobolewski, the head of fixed-income at ING PTE SA, the largest Polish pension fund managing the equivalent of $12.2 billion, said by phone yesterday. “Issuers wouldn’t get similar spreads in the Polish market” because of its limited size and low liquidity, he said.

Foreign ‘Option’

Local investors are wary of ABS instruments because they lack experience and in some cases the legal capacity to help evaluate the risk associated with the securities, Sobolewski said.

Fitch gave Santander’s Class A securitized notes an AAsf grade and Asf for Class B notes. Default rates on Polish auto loans have “significantly decreased” in recent years, which in Fitch’s view is the result of improved economic conditions and “tightened underwriting standards.”

“Asset-backed securities are an interesting investment alternative thanks to collaterals and high-investment grades,” Bartosz Woznicki, a fixed-income manager at life insurer Generali Zycie Towarzystwo Ubezpieczen SA, said by e-mail yesterday. “As there is a lack of interest among local investors, selling ABS notes abroad is the main option.”

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