This report does not constitute a rating action.
What's Happening
The EU Securitisation Regulation (SecReg) has been incorporated into the EEA Agreement, positioning Norway's securitization market for growth. The Norwegian government has approved the proposal for the SecReg implementation, with the law set to become effective shortly thereafter. Meanwhile, the Ministry of Finance has passed regulations to implement Regulations 2017/2401 and 2021/558 (amending the Capital Requirements Regulation for securitization) and the Commission Delegated Regulation 2018/1221 (amending Solvency II for securitization).
The other two EEA members, Iceland and Lichtenstein, have also adopted this regulation. However, given the relative size of the three EEA markets, we believe the most significant impact on the potential growth of the European market will come from Norway.
Norway can become a significant issuer of green auto asset-backed securities (ABS) due to its high electric vehicle (EV) adoption rates.
Why It Matters
The securitization regulation will likely bring significant changes to the financial sector in Norway. It will establish a common framework for securitizations throughout the EEA; lower capital requirements for Simple, Transparent, and Standardized (STS) securitizations; and offer exemptions from licensing requirements for special-purpose entities. The regulation will benefit financial institutions and investors, providing a more straightforward and cost-effective means of managing credit risk and accessing new investment opportunities. EU investors will also be able to treat EEA STS securitizations as EU STS transactions, potentially increasing the investor base.
SRTs likely to play a larger role in reducing risk
Growing demand for significant risk transfer securitizations (SRTs). Institutional investor demand for SRTs is strong. Recently, Oslo-based DNB Bank followed the lead of its European peers by increasing its use of SRTs. In November 2024, it launched its first SRT, linked to a portfolio of loans worth Norwegian kroner (NOK)17.6 billion ($1.6 billion) to companies, including small and medium-size enterprises (SMEs). The European Investment Fund (EIF) is providing credit risk protection on the mezzanine tranche of NOK1.1 billion then counter-guaranteed by the EIB.
Banks transfer risk to nonbanks for capital and risk management purposes. By purchasing credit protection (or selling a portion of the credit risk) on specific assets through SRTs, banks can lower the amount of capital they must hold against those assets and boost shareholder returns. Banks also use SRTs to manage risk, regardless of the impact on capital. They may use SRTs--even on low risk assets--to effectively reduce their exposures and concentrations by asset type, borrower, or other metrics--sometimes to avoid breaching related internal limits. Nordic banks across Norway, Sweden, Denmark, and Finland are exploring its use, adding to a growing list of European banks implementing SRT transactions.
Securitizations could help support the green transition in Norway
The EIB Group and DNB Bank have provided NOK2.2 billion (€190 million) in financing for Nordic SMEs and mid-caps through Norway's first-ever green synthetic securitization, supporting the transition to greener technologies and enabling the leasing of zero-emission vehicles. Backed by the InvestEU program, the transaction provides credit protection by the EIB Group and increases access to favorable financing terms for climate-related projects, thereby unlocking capital otherwise unavailable for such investments.
The transaction will help companies significantly reduce their carbon dioxide emissions and bolster the EU’s goal to become climate neutral by 2050.
Additionally, the initiative reinforces the broader objectives of the EU Capital Markets Union by providing a replicable model for sustainable financing across the region. The development coincides with Norway’s implementation of the SecReg into its legislation.
Beyond providing vital financing, the transaction highlights the power of collaboration between public and private institutions. The EIF, as part of the EIB Group, is playing a key role in structuring the synthetic securitization, helping unlock capital for green projects while mitigating financial risks for DNB.
What Comes Next
Get ready for more Norwegian securitizations. Auto ABS transactions are likely to see a return. Before the change in law in 2015, Santander Consumer Bank was a frequent auto ABS issuer through its Bilkreditt Norwegian program. As the Norwegian EV market is one of the most developed in the world, with a penetration rate of about 90%, this could represent a new source of green auto ABS transactions. Although covered bonds will remain the main source of mortgage funding for Nordic banks, securitization growth will offer them a supplementary funding source. Nordic banks already maintain a high CET1 levels, but the current low capital weights will likely increase under Basel III regulations. Securitization provides a means to manage these capital requirements effectively. We believe the main reason for Nordic securitization will remain risk transfer and capital relief. As securitization instruments become more mainstream and the investor base further develops, we expect to see more auto and consumer ABS transactions, and the adoption of securitization legislation will likely stimulate Norwegian securitization market growth.
Related Criteria
- Global Methodology And Assumptions: Assessing Pools Of Residential Loans, April 4, 2024
- Global Consumer ABS Methodology And Assumptions, March 31, 2022
Related Research
| Primary Contact: | Casper R Andersen, Frankfurt 49-69-33-999-208; casper.andersen@spglobal.com |
| Secondary Contact: | Doug Paterson, London 44-20-7176-5521; doug.paterson@spglobal.com |
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