Credit Portfolio Management Tools

Market practice before the crisis

In the late nineties banks started to actively manage their loan portfolios. First they focussed on their single name concentrations of large corporates using the credit default swap market. In the later stages, mainly in Europe, they used securitisation transactions to offload credit risk from their balance sheets and improved regulatory capital ratios. Credit Portfolio Management teams, responsible for executing these transactions, were the heavy users of economic capital and, under Basel 2 tools, had to calculate the impact on regulatory capital relief.

After the financial crisis in 2007 and 2008, the securitisation markets dried up and credit portfolio management on illiquid portfolios almost came to a standstill. One of the main reasons was punitive treatment of securitisation by new regulation both in Basel 3 and Solvency 2 and the large pricing gap between investor and spreads on loan portfolios.

Regulatory changes

Since late 2014, five major regulatory changes/announcements have taken place which impact securitisation as a useful instrument for credit portfolio management:

  1. The publication of the final post crisis reforms on the 7th of December 2017 – known as Basel 4 – on bank loan portfolios: this will lead to a dramatic increase of the risk weights for IRB Advanced banks, especially on Residential Mortgage Loans, Large Corporates and Specialised Lending. This will get introduced by 2021 and will be fully effective by 2027;
  2. The start of the Single Supervisory Mechanism (SSM) where all securitizations will be approved and monitored by the ECB leading to a harmonised treatment of all securitizations across Europe;
  3. The announcement of revision of the securitisation framework by the Basel Committee leading to a more preferential treatment of securitisation with less dependency on credit rating agencies. According to the latest planning, these rules will be effective by 2020 and opens the door for Standardized banks to use securitization market for capital management;
  4. The announcement by the European Commission of new due diligence, transparency requirements and lower risk weights on Simple, Transparent and Standardised securitizations;
  5. The announcement by the European Commission to align the Solvency 2 rules on securitisation with the Basel 3 rules, bringing insurers back to the securitisation market.

In addition market spreads have declined and therefore spreads on loan portfolios are large enough to support the yield requirements of institutional investors. More standardised data will make the due diligence on securitisation transactions easier.

Return of securitisation

As a result of regulation, banks’ balance sheets will become less efficient to support lending and therefore banks will try to use the balance sheet of institutional investors to keep their client relationships. At the same time these institutional investors are incentivised by their search for yield and the more preferential regulatory treatment of securitisation to invest in the risk of bank loan portfolios. To support originators of loans and investors, OSIS has developed a suite of tools for synthetic and cash securitizations.


For banks it is difficult to evaluate potential transactions under different regulatory regimes. Therefore we have developed LoanCracker™RA, an easy to use tool where banks can change the composition of the portfolio under the current and future regulatory environments, calculate optimal tranching and evaluate the regulatory capital relief and cost of capital relief during the lifetime of the portfolio with the potential of exercising call options.
SME Regulatory Shiny Picture

Dashboard of the regulatory analysis tool with predicted capital relief and cost of relieved capital. 

For investors we have developed LoanPilot™ ABS. LoanCracker™RA and LoanPilot™ABS can be easily integrated into one platform running both regulatory and economic analysis on the same constructed portfolio.

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