Assets in the Irish Financial Vehicle Corporations (FVC) sector dropped by €11.2billion (-2.3%) during Q4-2019, according to new data released today by the European Central Bank.
This is the first quarterly decline in Irish FVC assets since Q3-2017, and the largest since Q2-2017 when a drop of €18.8billion was recorded.
FVC is the term used in European law to describe securitisation vehicles. These are entities engaged in the isolation of cash flows and transfer of risk via debt securities.
A €15.1billion decline in securitised loans held by Irish FVCs was the primary driver behind the movement this quarter, falling from €137.5billion to €122.4billion during Q4-2019.
Despite the overall decline, Q4-2019 saw a rise in the amount of debt securities held by Irish FVCs. This category expanded by €9.7billion and includes tradable loans which are the primary assets of Collateralised Loan Obligation (CLO) vehicles. The amount of CLOs domiciled in Ireland has risen substantially in recent years.
The stock of debt securities issued by Irish FVCs increased by €6.4bn during Q4-2019, despite the overall asset decline. This brings total debt securities issued up to €311.5billion, continuing the sustained quarterly growth seen since Q1-2018.
The pairing of a decline in securitised loan assets along with a large decrease in other liabilities seems to suggest that this was the removal of a parcel of non-performing loans (NPLs) from the balance sheet of one or more Irish FVCs.
Securitised loans are recorded at nominal value in Central Bank/ECB data, meaning that NPL acquisitions create a balancing figure in other liabilities. When these loans are sold on or written off, other liabilities can drop substantially.
This statistical activity has been observed before when National Asset Management Agency (NAMA) vehicles sold off loan portfolios.
Despite the drop in headline assets, Irish FVC numbers continued to climb throughout Q4-2019.