What does credit card securitization mean? You will understand after reading this

I saw a post on the Internet asking for help from a netizen who said that he had owed credit card debt for a long time. I originally planned to negotiate with the bank for repayment, but I was told that the credit card debt had been charged. After securitization, the card department will no longer take care of it. I just want to know what it means when a credit card is debentured and what the consequences will be. Today we will talk about the topic of credit card bondization.

1. What does credit card securitization mean?

We all know that many people owe money to the bank. If the bank cannot collect it, it will become non-performing assets. And for this kind of non-performing assets, the bank will definitely not be willing to suffer losses and will pack them up. Issued in the form of securities and sold to the market at low prices to recover funds, this is the so-called securitization of non-performing assets.

These non-performing assets can be refined according to categories. For example, credit card debts are called credit card non-performing assets securitization. In short, it is just a means for banks to deal with non-performing assets. You can also see This is a way to dump the blame. The person who buys the bond becomes the new taker, and the money owed by the cardholder to the bank becomes money owed to the investor.

However, it should be noted that the biggest highlight of credit card securitization is pricing. After the bank sells the securities at a low price, the receiver can freely set the price and then resell it to other people. Anyway, the securities can be are always circulating in the market.

2. What are the consequences of credit card securitization?

Even if a credit card is securitized, it still needs to be repaid, but the creditor has changed from the bank to the person taking over. Although the debt relationship with the bank has been terminated, if you continue to not repay, then in the credit report The bad records on the card will not be eliminated automatically, and may even last a lifetime, and the cardholder may also be subject to various means of debt collection by creditors.

So, we should try our best to avoid this situation, and we must find ways to repay the credit card after it is overdue.

What does credit card securitization mean?

Credit card debt securitization (credit card receivables securitization) is to use credit card receivables as collateral and issue fixed income by a specific trust institution A form of bond financing for an investment vehicle.

Even if a credit card is securitized, it still needs to be repaid, but the creditor has changed from the bank to the person taking over. Although the debt relationship with the bank has been terminated, if you continue to not repay, then in the credit report The bad records on the card will not be eliminated automatically, and may even last a lifetime, and the cardholder may also be subject to various means of debt collection by creditors.

The securitization business of credit card receivables mainly has the following characteristics:

It mainly adopts the issuance structure of a master trust. Compared with a single trust, a master trust allows the sponsor to transfer new accounts receivable to the master trust at any time as needed, and issue different series of fixed-income securities from time to time accordingly. Since credit card debt is characterized by revolving credit, credit card holders can consume, borrow, and repay at any time. Therefore, the balance of credit card debt may fluctuate significantly depending on the cardholder's behavior. Therefore, credit card receivables Securitization is well suited to a master trust structure.

For investors, under the issuance structure of the master trust, investors share the income generated by the same sponsor's trust asset pool. Since the size of the master trust asset pool is usually larger than that of a single trust, is large, so the risks are spread out.

The securitized asset pool has three different cash flow turnover periods. The cash flow cycle includes the receivables cycle, agreed repayment period and early repayment period. During the receivables cycle, as credit card receivables continue to be repaid, newly generated credit card receivables are continuously injected into the asset pool to maintain the stability of the asset pool. Internationally, the receivables cycle usually ranges from 2 to 11 years.

During the agreed repayment period, new receivables will no longer be injected, and the size of the asset pool will continue to decrease until all investors’ principal and interest are paid off. The period is usually 12 months. The early repayment period is an advanced institutional arrangement. When the asset pool shrinks severely or when the sponsor has serious problems, the securitized assets will automatically initiate the forced early repayment process and immediately begin to repay investors' principal. This institutional arrangement ensures the interests of investors to the greatest extent and avoids long-term market risks of securitized assets.

A variety of credit enhancement methods ensure the stability of investors’ income.

In order to obtain an investment-grade credit rating, originators often use various credit enhancement methods. Common ones include setting excess spread, cash collateral account CCA, collateral invested account CIA, and setting up subsidiary layers ( subordination).

The excess ratio means that in addition to repaying investors’ normal principal and interest, the cash flow generated by credit card receivables should also be sufficient to make up for various related expenses, losses and reductions in receivables. Fluctuations in the asset pool. If the securitized assets are operating normally, the cash flow generated by the credit card receivables is sufficient to pay the investors' principal and interest; once a problem occurs, the excess cash flow generated will need to be used to repay the investors' principal and interest.

The Cash Collateral Account (CCA) is a cash trust account that is independent of the securitized trust assets. Once special circumstances occur and the excess ratio is exhausted and it is still insufficient to repay the principal and interest of investors, it needs to be used. Cash Collateral Account. Cash mortgage accounts are generally composed of third-party bank loan investments, and the repayment order is after ordinary investors. The funds in the account can be invested in short-term securities assets that can be cashed at any time.

A Collateral Investment Account (CIA) is similar to a private equity investment in securitized assets and functions like a cash collateral account. It is usually formed by a bank after a credit rating company makes an investment grade rating.

The use of subordination divides the securitized asset pool into two levels: priority (A) and subordination (B). The priority is discharged before the subordination. If In special circumstances, when the excess ratio, cash mortgage account and investment mortgage account are insufficient to repay the principal and interest of the priority class, the losses will be borne by the subsidiary class.

Is credit card securitization a write-off?

No. Supplementary knowledge: 1. Asset disposal is more flexible. Asset disposal is more flexible. Compared with the various requirements for write-off, asset securitization can package and sell assets that cannot be written off temporarily, thereby avoiding assets that cannot be written off all the time. Problems that have settled down and affected the bank's risk performance; 2. Faster asset disposal. In traditional write-offs, there are clear limits on the length of overdue assets, while asset securitization products can sell products with earlier overdue stages, thus Dispose of distressed assets faster. Reduce financing costs and financing risks, and increase funds

That’s it for the introduction to credit card securitization.