Ratios specific to Sociétés de crédit foncier (SCF)
Article L.515-20 requires that total SCF eligible assets always exceed the total amount of liabilities secured with a privileged claim. One of the Specific controller’s duties is to monitor compliance with this overcollateralization rule.
In addition to this regulatory safeguard, Compagnie de Financement Foncier also maintains a minimum level of overcollateralisation which is superior to the 102% required.
Compagnie de Financement Foncier permanently monitors its regulatory overcollateralization ratio to ensure that its assets are sufficient to fully cover all of its obligations foncières and that it goes beyond the legislative required.
On December 31, 2011, this regulatory ratio was 110.6%. Since the company’s inception in 1999, it has always been above 108%.
This is the minimum legal requirement, under which some assets may be weighted less than 102%, is the first level of overcollateralization. But Compagnie de Financement Foncier has gone further than this to cover its risks and has chosen to maintain in any event a volume of non-privileged liabilities at least equal to 5% of the liabilities that benefit from the privilege.
Compliance with this additional overcollateralisation rule provides extra-security for investors in the company’s privileged debt. Compagnie de Financement Foncier thus requires overcollateralization above the minimum required ratio, and has adopted rules to minimize the following risks:
- credit and counterparty risk;
- interest rate risk; by systematically hedging variable-rate assets and liabilities;
- liquidity risk: by maintaining enough cash to meet 12 months of privileged debt obligations in a runoff scenario.
Compliance with these commitments is reported to credit rating agencies quarterly.
Compagnie de Financement Foncier engaged to maintain a particularly high and sustainable overcollateralisation ratio, at two levels:
- the legal overcollateralisation ratio: in compliance with SCF regulations, Compagnie de Financement Foncier’s weighted assets must be equivalent to at least 102% of its privileged liabilities at all times. At December 31, 2011, it is 110.6%.
- the specific overcollateralisation ratio of Compagnie de Financement Foncier : it has chosen to maintain at any time a volume of non-privileged liabilities at least equal to 5% of the liabilities that benefit from the privilege. At December 31, 2011 the non-privileged resources represents 13.8% of the privileged resources.
For more information, please refer to the 2011 Registration Document (click here)
The loan-to-value ratio on residential mortgage loans (€36.21 billion at end-2011) is the ratio of the outstanding
principal over the value of the underlying real estate. Collateral is revalued annually to monitor compliance with this ratio.
The regulatory annual valuation of underlying assets is based on a prudent assessment of the property’s long-term characteristics, local market conditions, the current use of the property and other possible uses. All of this information is provided by Foncier Expertise, Crédit Foncier’s wholly-owned, Veritascertified subsidiary. Their experts, who are either certified by a court or qualified as chartered surveyors (MRICS(7)), conducted nearly 10,000 appraisals in 2011. The Specific Controller monitors these appraisals each year to verify compliance with the real-estate market parameters used in the valuation process, as described in the risk report section of the Registration Document.
On the basis of these rules, at December, 31, 2011, the company’s LTV ratio on its mortgage portfolio was relatively
stable at 61.6% (vs. 62.3% at December 31, 2010).
The technical ratio previously calculated at December 31, 2010, using different rules (mortgage and intra-group notes weighted at 20% and participating loan classified as additional capital) resulting in a Tier One ratio of 8.0% and a solvency ratio of 11.7%. After applying the new rules, issued by the Prudential Control Authority, to the data at December 31, 2010, the solvency ratio was stable.
The application of the actual calculation rules for the ratio at December 31, 2010 gives the following results:
|Tier 1 + Tier 2||19.8%||20.0%|