Impact Study
Opportunities and challenges for banks in the secondary loan trading market
The lending market has markedly evolved in the last couple of decades. One of the most significant aspects has been the shift from originate-to-hold to originate-to-distribute (OTD) models. Whereas historically, lenders used to originate loans and hold them through maturity, several market factors have necessitated a diversification of risk. Diversification of funds, optimisation of asset management, risk optimisation, as well as a need for increased profitability have catalysed the OTD model— particularly when banks retain the right to service the loans.
However, barriers to adoption remain as banks grapple with infrastructure and data concerns, and regulatory updates in the space are further affecting how banks approach and optimise their OTD models. On top of that, increasing interest rates over the last four years have meant increased risk for banks that are already struggling with regulatory and capital cost. Add to this the rise of private credit institutions that offer direct lending (and face lower regulatory and capital cost), and banks are starting to feel the pressure of decreasing margins.
This Finextra impact study, produced in association with FIS, explores:
The growth of OTD models and the secondary loan trading market;
The challenges banks face in the lending space, including: Increased competition, Inadequate data structures, and Regulatory requirements;
The opportunity that OTD models— combined with artificial intelligence (AI)—offer to help optimise banks’ portfolios and balance sheets.
Register to watch the related Finextra webinar, hosted in association with FIS –
Entering the Originate-To-Distribute era: Exploring commercial lending and portfolio diversification
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