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(^404) Financial Management
Figure:Figure:Figure:Figure:Figure: Process Flow Chart of Asset Securitisation
Advantages
l The main benefit to the originator is the additional source of capital can be
accessed through securitisation relieving the normal receivable, deposit collection
process.
l Without disturbing the liabilities side of the balance sheet the originator can
raise finances and increase their activity of lending which enhances the
profitability.
l The originator can reduce their existing debtors and can reduce their risk.
l By selling the debtors in the form of securities, liquidity of the entity/bank can
be enhanced.
l Cash coming in from sale of assets can be used to fund either capital and
reserves or to lend again.
l In case cash is used to fund capital and reserves, it results in lowering the debt-
equity ratio.
l If in case cash is lent, it increases the turnover and profit ultimately for the
business.
l Securitisation also improves the income to asset ratio by increasing income on
the one hand and reducing the total volume of assets on the other.
l The main benefit to an investor is that he gets a security which is backed by
adequate collaterial and has credit enhancement.
l Most of such securities are rated by credit rating agencies. Hence, it becomes
Bank/Financial
Institution/Company
Balance Sheet
Liabilities Assets
Trade receivables
Automobile loans Investors
Housing loans
Mortgage loans, etc.
Pool of Assets Trust Instruments
Credit Rating Third Party support Insurance cover Underwriting