Growth in Europe’s peer-to-peer lending could benefit ABS market
Some form a bank loan or security usually forms the collateral in the pools that back securitisations across Europe; but, although it remains a nascent market, Peer-To-Peer (P2P) lending, also known as marketplace lending, could expand the universe of potential investors in Europe in this alternative funding tool for SMEs and private households, said Moody’s Investors Service.
Despite the emergence of disintermediated funding mechanisms during the financial crisis, P2P lending is one of the few alternative funding mechanisms that is available for typical SMEs and households alike. The P2P market is growing quickly in Europe, and, as with any other receivables, P2P loans can be securitised through the sale of the loans to special-purpose vehicles (SPVs) that issue corresponding securities sold to investors.
The new report “European peer-to-peer lending developments are credit positive for SMEs and consumers”, is now available on www.moodys.com
P2P lending platforms can fund their loans in several ways. Essentially though, they aim to match cash flows from borrowers with those from lenders through Internet platforms. In practice, a bank can be involved in the origination process, but for P2P the platform generally sets the lending underwriting criteria and pricing policy so the bank’s role is less prominent.
Mr Weil, Moody’s vice-president and co-author of the report, said: “P2P lending platforms are created with different purposes and rules, and many differences exist in the geographic or industry focus, type of lenders or borrowers targeted and policy in terms of loan sizes, as well as credit criteria and operational set up. Securitisation of P2P loans have already occurred in the US. As the P2P sector matures in EMEA, securitisation could drive more funds towards European P2P lending. By tapping investors in the rated securitisation market, European P2P lenders could attract larger investment volumes or lower their funding costs, and hence increase their scale and the amount of lending they provide.
“We should note though that P2P lending is not without its own specific credit risks, although operational set ups may mitigate some of these risks.”