Observations on the Securitization of Non-Performing Loans in Russia

Abstract

Asset securitization is a burgeoning trend in Russia as companies burdened by poor credit ratings seek access to capital at lower costs than they would be allowed in traditional equity or debt markets. In other countries, non-performing loan portfolios are assets that are frequently securitized. But securitization of these bad loans has not occurred in Russia at the levels one might expect. This has been due to both a relatively small amount of loans that under-perform as well as legal and regulatory impediments that have discouraged investors and lenders alike. However, expansion of consumer credit in Russia and the circumstances under which it is occurring indicate that the level of non-performing loans is due to rapidly increase and as the rationale for maintaining the impediments that stand in the way of securitizing these loans is being re-examined, those impediments are being scaled back to make way for market participants to engage in such securitizations. Thus, this article anticipates a significant rise in the level of non-performing loans, which will be logically paired with an increased interest of Russian lenders in securitizing these assets.

Keywords: Securitization, Russia, Loans, Securitize, Non-Performing Loans, Under-Performing Loans

JEL Classification: K22, F21, F47, G15, G21, O16