FINANCIAL ASSESSMENT

Financial Assessment

Financial Assessment

Introduction

The study is related to the securitizing of loan; in which a medium sized retail bank has approached the investment bank about securitizing its loan book. This securitization will affect the operations and profitability of the retail bank. As an Investment bank, securitization of medium sized retail bank in the broad sense is a structured transaction, which converts the flow of subsequent payments in tradable securities. In a literal sense that issue securities backed by cash flows from specific assets.

Cash flows for securitization should be, firstly, separable from the initiator of securitization, and secondly, projected on the timing and volume, and third, more or less regular, and, fourthly, homogeneous, and if many of these flows. Based on these requirements, we can say that the bank's loan portfolio, ideal for asset securitization.

The financial sector in UK is currently experiencing substantial growth in bank lending. At the same resources attracted for a term exceeding three years, are no more than 7 % to 8 % of bank liabilities, which leads to impaired development of long term loans, especially mortgages. The development of effective mechanisms for refinancing loans may be one way of overcoming the shortage of long term financial resources in liabilities of medium sized retail bank. Securitization is one of these mechanisms.

Discussion

As an Investment bank, it is important to consider the classical scheme of securitization of the loan book of medium sized retail bank, that is, a scheme in which there is a real asset sale originating bank specially created entity.

In securitization process of medium sized retail bank, primary lender (originator) generates a pool of loans, which are homogeneous according to some criteria, and assigns (sells) its specially created entity (Special purpose vehicle - SPV), which finances the purchase by issuing securities backed by future payments on loans. Thus, the originator receives the capital raised from investors in the stock market. In the securitization transaction also involved service agent (servicer), which accepts payments, from debtors, works with those of them who have the indebtedness on the loan, and foreclose on the collateral for secured loans. For this work servicer receives from SPV Commission; in the role, of the service agent may act himself the originator.

To protect investors' interests in securitization transactions also involved special trusts that control the distribution of cash flows from the securitized assets. In addition, the reserve may be appointed service agent in case of default the main service agent of their obligations to service the pool of loans.

Thus, investment bank can formulate the basic principles of securitization of the loan book of medium sized retail bank;

- The validity of the sale of assets.

- Protection of a specially created entity from bankruptcy.

- Strict control over investors' cash flow.

Payment claims by medium sized retail bank against their customers are illiquid book. The securitization exposures; such receivable balances provides a way to refinance, because it changes the receivable balances in marketable securities that can be placed on the capital ...