Not many parts of the structured finance market have managed to avoid fallout from the crisis in US sub-prime. South Africa seems to be one of them. However, as more and more issuers embrace the concept, supply has outstripped demand and spreads are trending wider.
Barry Martin, head of securitization at Rand Merchant Bank, a division of FirstRand Bank, says: "Spreads have been increasing slowly over recent months, long before any sub-prime problems in the US. There is simply too much supply as banks start to use securitization as a way to diversify their funding sources. I also can’t see the demand side changing a huge amount any time soon. The only thing that could have an impact on this is if the exchange controls are removed – but we’ve been speculating about that for five years already."
In contrast, Paul Bowes, head of group funding and liquidity management at Absa Bank, thinks that fund managers are starting to be more interested in the subordinated paper available from securitization transactions.
However, Bowes agrees with Martin and also believes that the US sub-prime problem is not having much impact in South Africa.