New regulatory and accounting rules may change banks securitisation strategies, but the new rules should not change banks’ ratings, says Fitch Ratings in a new report.

The rating agency says that the more widespread adoption of International Financial Reporting Standards and the implementation of the Basel II capital adequacy standards are providing new insights into the effectiveness of bank securitisation as a risk transfer mechanism. But, it stresses, that changes in accounting or regulatory rules do not alter the underlying economic reality of transactions, so, “the implementation of IFRS and Basel II will not in themselves result in changes to banks’ ratings.”

“IFRS are much less generous towards securitisation than many previous accounting regimes were, which is why we are seeing a lot of securitised assets coming back on to European banks’ balance sheets in their IFRS financial statements,” says Martin Oldham, director in Fitch’s Financial Institutions Group and co-author of the report. “However, we expect banks to adapt to the stricter rules and to find new ways of structuring transactions to meet the risk-transfer criteria.”

On the whole, Fitch expects banks to pay more attention to regulatory capital requirements than to the effect of changes in accounting treatments. “Basel II requires banks to hold more capital against retained risks in securitisations than is currently the case, potentially making securitisation less appealing from both a regulatory capital as well as an accounting point of view,” it explains.

However, despite the apparent disincentives, Fitch does not expect banks to become less active participants in the securitisation market. Instead, it believes that banks will be changing the way they structure transactions, placing a greater emphasis on transferring the residual risks in transactions. “This should be a positive development for banks’ credit risk profiles,” it suggests.

Fitch says that it will not be fundamentally altering its approach to securitisations in response to developments in the accounting or regulatory treatments. The agency says it will continue to analyse transactions on a case-by-case basis looking at both the effectiveness of risk transfer and the degree of retained exposure. “However, the more demanding criteria and increased disclosure requirements imposed by both IFRS and Basel II may reveal risks not previously taken account, which could have a bearing on some banks’ ratings, particularly if they are heavy users of securitisation. Banks’ behaviour towards their own securitisation issues may also change in response to the new accounting and regulatory environment,” it notes.