- Strict asset eligibility criteria
- Purchasing criteria that limit credit risk exposure
- Internal credit rating tools for each type of risk
Our assets satisfy law’s criteria
Eligible assets are defined by law
The Savings and Financial Security Act of June 25, 1999 defines the conditions upon which the sociétés de crédit foncier are authorised to grant or to acquire (article L.513-2):
- secured loans (article L.513-3);
- exposures to or guaranteed by public authorities (articles L.513-3 to L.513-7);
- tranches and debt securities issued by a securitisation fund or a similar entity;
- debt securities and instruments deemed to be sufficiently secured and liquid.
Provenance of the selected assets
The assets of Compagnie de Financement Foncier originate from three main sources:
- the transfer of the eligible part from Crédit Foncier’s balance sheet to Compagnie de Financement Foncier’s at its inception;
- Before March 31st, 2019, the eligible loans bought from Crédit Foncier: residential mortgage loans, local authorities or public sector loans;
- From April 1st, 2019, the eligible loans bought from entities of Group BPCE: Public-sector and equivalent loans;
- the other eligible assets: loans and securities issued by the french and international public sectors and replacement values.
Compagnie de Financement Foncier’s assets are composed of:
- mortgage housing loans in France
- loans to local authorities in France
- securities and public debt outside France
- replacement values and other assets
1st level: Crédit Foncier’s debt selection system
Compagnie de Financement Foncier implements a strict asset selection process, including additional asset purchasing criteria that incorporate purchasing scores and minimum credit ratings by the loan originator, the Crédit Foncier.
Thus, not only the quality of the eligible assets provides Compagnie de Financement Foncier with a high level of security, but the supplemental constraints that it imposes to itself and the internal credit ratings limit its credit risk exposure.
Selection system and commitment monitoring at Crédit Foncier level are based on a system for assessing the borrower’s creditworthiness.
- Assessment of the creditworthiness of private individuals is based on a systematic rating system at the origination and then on a monthly basis and on decision-making support tools developed by the Group. It aims at crossing data between customer and loan data at origination, loan guarantees, and takes into account the customer’s credit history.
- In the same way public sector loans are subject to a systematic rating system at the origination and then on an annual basis:
- Those for the French public sector are made through decision-making support tools; and
- Those for the international public financing are realized thanks to internal credit rating models. These models closely reproduce the models implemented by the three leading rating agencies and happen to be on average more conservative than our own.
2nd level: The acquisition filter
Compagnie de Financement Foncier then selects the loans on the basis of their rating and, for mortgage loans, on their probability of default and their Basel II credit rating. The selected loans are bought by Compagnie de Financement Foncier at a market price and are covered against interest rate risk. For residential mortgage loans, this filtering system allows the independence of the financing policy of Compagnie de Financement Foncier from commercial policy of Crédit Foncier de France and other grantors. Some eligible loans may be rejected by Compagnie de Financement Foncier and would be eventually bought years later (2 to 4 years) if and only if no payment incident was observed during the period between.
Profitability of the activity
In this business model, Compagnie de Financement Foncier assures the recurrent profitability of its activity: the market price of the assets bought by Compagnie de Financement Foncier takes into account the level of the interest rates, the loss and default probabilities, the credit management fees and define the parameters of profitability.
Thanks to these management rules, the rating agencies assign a quality rating to Compagnie de Financement Foncier’s obligations foncières (AAA/Aaa/AAA). The issuer can thus collect resources on the markets at the best conditions. Crédit Foncier and Groupe BPCE improve their market share on mortgage and public sector loans.