The Effectiveness of Asset Securitization Transactions as a Tool for Reducing the Credit Risk of a Commercial Bank in the Russian Federation

Asset securitization is often considered a promising tool for managing a wide range of risks – credit risk, in particular, which is due to the fundamental concept of securitization transactions assuming the transfer of cash-generating assets pool from the originating commercial bank balance sheet to a third party in exchange for funds received as a result of such third party issuing securities secured by respective assets and generated cash flows, and placing such securities with independent investors. In current circumstances of continuous increase in regulatory capital adequacy requirements, decreasing banking business profitability margins and growing long-term funding costs the benefits of securitization technique become more and more appealing for Russian banks. As a part of this study, the author presents an overview of securitization transaction types, investigates the effectiveness of risk transfer mechanisms in each case, considers the economic angle of these instruments usage (e.g. the benefits for increasing capital adequacy and improving commercial bank profitability), reviews the Russian regulatory environment as well as Russian commercial banks practice in the area, including such practice comparison with international use cases and analysis of the securitization transactions structure in the Russian Federation.