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. Last Updated: 07/27/2016

Duma Gets Bills Widening Securitization Rules

The government has submitted legislation to the State Duma that would allow banks to securitize consumer credits, auto loans and credit card debt in addition to mortgages, which they are already allowed to bundle and sell.

The two bills were prepared by the Federal Service for Financial Markets and submitted by the government Tuesday. They would allow Russian companies to securitize financial assets and pledge financial liabilities and bank deposits as collateral.

The markets service began preparing regulations for the securitization of loans several years ago, when such bonds were very much in fashion around the world and considered very safe. The economic crisis, however, has changed investors' opinions of these products.

Under the rules, securitization will allow for the financial packaging or repackaging of legal entities' assets, which will earn revenue after being converted into tradable bonds and notes.

Russian law now allows mortgages to be packaged, but the new bills would create rules for other assets, such as auto and consumer loans and credit card payments, said Dmitry Glazunov, managing partner at Liniya Prava.

That will provide banks with new instruments for refinancing, which will in turn help them clear their balance sheets of loans and attract capital for new lending.

Currently, banks can only securitize such credits abroad through the creation of special companies that issue bonds. For example, the Moscow Bank for Reconstruction and Development securitized nearly $200 million in car loans in February 2008, which went to the Luxembourg-registered Russian Securitization Platform SA.

Such companies will be called specialized financial companies (or SFOs, by their Russian acronym). Under the new legislation, they will be created to raise capital from individuals and corporate entities through bond issues backed by consumer financial obligations.

The market has been waiting several years for this law, said Maxim Korotkin, head of MICEX's securitized assets management department. "We're hoping that it is passed as soon as possible and that the Central Bank supports the inclusion of such securities in the lombard list, alongside mortgage-backed securities. It would help banks with liquidity and stimulate additional lending to individuals," he said.

Even after the law is passed, the market will take a year or two before people get used to it, Glazunov said. "But it's potentially a big market, which currently is located abroad." 

With the Central Bank's backing, such instruments would be in high demand, especially for ruble loans, Korotkin said.

There have been no public deals on securitized Russian assets abroad since September 2008, said Maxim Raskosnov, analyst at Renaissance Capital. "Foreign investors just didn't develop an appetite for this kind of risk," he said, adding that previously the market was worth as much as $5 billion.