Rabobank reduces balance sheet by selling part of mortgage portfolio
Rabobank has sold a share of its mortgage portfolio worth EUR 1 billion to the insurance company VIVAT Verzekeringen (VIVAT). The total value of Rabobank’s residential mortgage portfolio is EUR 201.5 billion (per end-2015). Up to now residential mortgages granted by local Rabobanks were accounted for on Rabobank’s balance sheet. The fact that the bank is moving part of its mortgage portfolio off balance is related to a number of factors: additional regulations on capital requirements, the appetite of institutional investors, and Rabobank’s wish to continue providing mortgages and loans to customers.
The total value of Rabobank’s residential mortgage portfolio in the Netherlands is EUR 201.5 billion (including Obvion). This is a substantial element of the balance sheet. Like other banks, Rabobank is also affected by tightened European regulations, the corresponding funding targets and the desire to keep on meeting the requirement for higher capital ratios in the future. Which is why the bank has made this move towards partial sale: this initial transaction of EUR 1 billion represents around 0.5% of Rabobank’s total mortgage portfolio.
Freeing up extra capital
In line with its capital strategy Rabobank is using this transaction to free up capital to further strengthen its buffers. If the bank were to keep all residential mortgages on its own balance sheet, it would have to tie up extra capital to meet the expected capital requirements. Instead of tying up extra capital in this way, the bank sees more benefit in transferring the portfolio to institutional investors such as pension funds and insurers.
At the same time insurance companies like VIVAT are looking for good investments with an appropriate long-term duration. A holding in Dutch mortgages offers an appropriate return and with its relatively low risk profile this mortgage portfolio is an attractive investment for VIVAT.
Granting mortgages and loans
The move to sell on a small part of the residential mortgage portfolio is also in the interest of customers because it improves the bank’s capacity to grant mortgages and loans. Particularly if the economy and the housing market continue to pick up, the bank wants to continue servicing retail and business customers instead of having its capital ‘sitting tight’ on the balance sheet.
The transaction means that VIVAT is buying part of the existing mortgage portfolio and will transfer the sale price to Rabobank. During the term of the transaction Rabobank will pay VIVAT all cash flows from this part of the portfolio, such as interest payments and redemptions. In contrast to the structure used by special mortgage funds, this allows the company to participate directly in Rabobank mortgages.
Customer relationship unchanged
This sale has no consequences for mortgage customers. Customers will keep all their contacts with Rabobank: the mortgage contract and conditions which were agreed between the bank and the customer remain the same. The local banks do not know which mortgages have been sold on and naturally Rabobank remains the sole point of contact for the customer.