The traditional banking business is changing. From being deposit takers (of individuals and companies) and lenders of said funds (spread business or difference between the rate paid to savers and the rate charged to borrowers), commercial banks are gradually becoming originators of portfolios credit (personal, pledge, mortgage, credit cards) which are then traded on the stock exchange through financial trusts generally managed by them.
The new operation is called securitization, and consists of the issuance of securities backed by said credit portfolios, which allows banks to obtain fresh funds that will again originate credits that will later be re-securitized (or securitized, they are synonymous) giving continuity to the cycle. In other words, from the spreads business, banks are moving into the commission business: for managing securitized portfolios, for managing financial trusts, among other new market niches.
And is this good or bad? Undoubtedly, for the liquidity of our financial system it is very good. Because it helps to overcome an old trauma of our retail banking, the mismatch between deposits and credits of the system. It happens that banks take deposits (checking account, savings account, fixed term) generally at terms of less than one year and give loans in many cases with terms much longer than those of said deposits, putting at risk the response capacity of the system to bank runs. We will know about bank runs in Argentina!
According to the site Notibancos.com, financial trusts are instruments that today present a growing degree of acceptance in the local market to be used as a financing alternative (by the trustors) or as an investment alternative (by the beneficiaries). So much so that in 2005 the volume of issuance of these instruments tripled that of the previous year.
During 2005, the structuring of financial trusts reached $ 5,147 million throughout the country, a figure that is equivalent to 35% of the increase in loans to the private sector in that same period. In this regard, it should be noted that currently the current stock of financial trusts already represents more than 10% of the stock of bank loans to the private sector. And the trend is towards sustained growth in the coming years.
But what is this about trustors, beneficiaries, etc? The financial trust is structured around three basic actors:
- the settlor: (that is, the entity that originally granted the loan, usually a bank, but also household appliances, credit card companies, etc.), the trustee: (the entity, usually a bank, that is in charge of the issuance of securities backed by the credit portfolios originated by the trustors, including relatively homogeneous loans -similar rates, terms- from different provinces, individuals, etc.) the beneficiary: (investors in the securities issued by trusts, securities which as we said are backed by the flow of funds from the original credit portfolios)
Banks as trustors
According to a report from the BCRA, banks have been participating strongly as trustors. For example, in 2005 the ranking (based on the volume of issuance) was: first, banks with 62% of the volume issued, followed by retail companies (Frávega and others) with 19%, and then, by entities financial institutions outside the BCRA's orbit with 15% and by other institutions with 4%.
The same BCRA report indicates that the assets most used to structure these financial engineering works are: personal loans (42%), credit card coupons (11%), mortgage loans (10%), commercial loans (10%), and other assets (27%).
Banks as fiduciaries
Second, the banks also manage another of the legs of this business (the administration of the trust), 93% of the funds that make up the financial trusts in force today are managed by banks, which results in income via commissions for this task.
Banks as beneficiaries
Thirdly, the banks are also the large investors in these instruments (beneficiaries), according to the BCRA those who invest the most in financial trusts are: banks with 60% of the stock, followed by the AFJPs with 8% of the stock and mutual funds with 3%. The remaining 29% is highly fragmented in the power of insurance companies, companies, individuals and foreign investors. And, for a bank, being a beneficiary of a financial trust is very different from being a creditor of its own loan portfolio: it is much faster to negotiate securities on the stock market and get cash than to wait for its debtors to pay until the last installment of the credits, or having to fall into the BCRA to rediscount credit portfolios, in case of need to obtain funds in case of temporary illiquidity.
Mendoza
Although there are no data by province, Mendoza is almost certainly not immune to this trend. Most of the banking houses present in our province are branches of central houses of Bs. As., Which most likely implies that part of the credit portfolios generated in Mendoza today are integrating the different financial trusts designed via the Buenos Aires capital market.
conclusion
The figures presented show that the role of the banks is strong in the three pillars of the business, since they stand out as trustors, as investor-beneficiaries and as trustees or administrators. The revolution is silent, but little by little the banks are combining the spread business (difference between active rate and passive rate) with that of trust commissions. The spread business forces them to have to lend funds and maintain these portfolios in their assets for terms longer than their deposits, with the consequent risk of mismatch (illiquidity), that is, of not being able to face bank runs. However, since securitization arrived in Argentina (mid-1990s), banks no longer need to maintain “barefoot” portfolios in their assets,They can be securitized and made from fresh funds, which implies a change in their business, to which these entities must adapt. But for the economy as a whole, securitization and financial trusts are very good news when it comes to avoiding future bank runs.
