Frequently Asked Questions
Securitization is a process that allows a bank to quickly sell impaired loans (NPLs) and obtain immediate liquidity (for the meaning of NPL, click here).
The purpose of securitization is to relieve a bank’s balance sheet of loans that are not producing any profit.
Securitization begins with the transfer of a portfolio of NPLs to a company, called a Special Purpose Vehicle (SPV), created specifically to purchase the impaired receivables and provide immediate liquidity to the bank. Briefly, the various steps in the securitization process:
- A bank decides to sell the impaired loans (NPLs) weighing on its balance sheet
- The SPV places the loans with investors and uses the proceeds to purchase them from the bank.
- At the end of the securitization, the investors are the new owners of the loan. Therefore, the risk of the loan sold will be transferred to them and no longer to the bank that sold it.
No, the servicer and sub-servicer are not related to the bank assigning the loan.
Once the loan assignment agreement is finalized, management passes to the servicer and/or sub-servicer working on behalf of the investor, buyer of the NPL portfolio (for the meaning of sub-servicer, click here).
Once the portfolio has been sold by the bank and purchased by the investor (through the SPV), the debtor is notified of the sale of the portfolio and, therefore, of his debt.
From this moment onwards, the debtor will no longer interface with the bank to which he was obliged, but will have to contact the sub-servicer who is managing the recovery of his debt (on behalf of the investor) and find a solution to settle the debt with it.
A win-win strategy is an approach that aims to reach a win-win agreement.
It is particularly important in negotiating relationships involving parties with competing interests. In a negotiation between parties with opposing interests, these interests can easily generate conflict. This can be avoided through:
- The establishment of a transparent relationship
- A positive attitude
- Mutual listening
- Good communication.
Speaking of a win-win strategy, it’s important to mention the out-of-court solution. In fact, where it is possible to do so, it is the strategy that (1) most frequently allows the achievement of win-win solutions and therefore of advantageous agreements for both debtors and creditors; (2) is more convenient compared to a court-ordered sale of the assets under guarantee, since in court the sale would take place at a significant discount compared to free market values and against high procedural costs.