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In mid-June, the Australian Securitisation Forum (ASF) hosted an investor seminar in London to help spread the word about the Australian structured-finance market to international buyers. As part of its partnership with the ASF, KangaNews is able to share a flavour of the London event – including perspectives from leading Australian market participants.

Global messaging

EVENT REPORT

C H R I S D A LTO N A U S T R A L I A N S E C U R I T I S AT I O N F O R U M

When you look at the Australian property market it’s important to be aware of the various regional markets rather than relying on aggregate figures. In this particular growth cycle property prices are up 37 per cent in Australia’s state capital cities but, within this, Sydney is up 50 per cent while Perth is down 7 per cent. It’s not a uniform picture.

Figures from the Foreign Investment Review Board show that China is the largest source of overseas applications to buy Australian property. In 2014-15 there was A$24 billion worth of Chinese applications for real estate, a figure that was followed by the US – at just A$7 billion.

M I C H A E L M O L O N E Y W E S T PA C I N S T I T U T I O N A L B A N K

Nonmortgage ABS issuance volume so far in 2016 has predominantly been in the auto-backed sector, dominated by Macquarie Bank and Westpac Banking Corporation. Looking forward to 2017, we are really hopeful there will be more diversified collateral.

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M AT T H E W O ’ H A R E P E P P E R A U S T R A L I A

Banks have tightened lending standards as a result of regulation, which has had a flow-on effect to the specialist mortgage sector. We are now able to pick up a significant quantity of near-prime loans that the banks might previously have written.

R I C H A R D M C C A R T H Y P E R P E T U A L C O R P O R AT E T R U S T

Data have improved significantly since 2003, and again there was a quantum leap in terms of quality and standardisation of data from June 2015. We now have a great data structure and the opportunity is how to leverage off global technology suites to do predictive analytics. This will allow market participants to look at trends and time series through the cycles to get more market insights.

K E V I N L E E M A C Q U A R I E B A N K

We will hopefully see more deals securitising a broader range of collateral. The traditional lending markets are very mature and competitive, while the main players in autos and mortgages are looking to diversify into new opportunities. Over time this could flow through to funding in the capital markets.

C H R I S G R E E N A U S T R A L I A N S E C U R I T I S AT I O N F O R U M

Australia’s unemployment number dropped in April, we have a historically low interest rate – 1.75 per cent – and economists believe there may still be one or more cuts in the next 6-12 months. All this underpins Australia’s arrears performance – we have had a very benign environment for a long period of time.

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M A R Y P L O U G H M A N R E S I M A C

The fact that bank balance sheets have not been as active as RMBS buyers has affected liquidity. I think this is probably one of the reasons for the gapping out of RMBS spreads versus senior-unsecured bonds. But pricing should stabilise as investors re-enter the market and the relative-value proposition becomes clear. We feel that banks have been less aggressive in mortgage-book growth due to the impending increase in capital requirements – and this has levelled the playing field for nonbanks. The nonbanks have picked up market share, and generally this has been a good development in the Australian mortgage market – which previously was very much dominated by the four major banks.

EVENT REPORT

G W E N N E T H O ’ S H E A A M P B A N K

In Australia, the National Credit Code places responsibility on lenders to prove they have all the documentation from the borrower to assess a loan for approval. This means that, in addition to the borrower providing valid documentation, the responsibility is on the lender to verify the documents and prove the applicant meets serviceability requirements.

N E I L C A L D E R E U R O P E A N B A N K F O R R E C O N S T R U C T I O N A N D D E V E L O P M E N T

We have always been impressed by the transparency of the Australian market: monthly reporting has always been available while the quality and reliability of data is good. The rating agencies and particularly the large bank research houses also give us a really close view of what’s going on, so we feel familiar with some of the micro elements that take place while we hold securities.

P E T E R C A S E Y I N G B A N K A U S T R A L I A

There’s no need to complicate structures – investors are comfortable with the traditional pass-through FRN. There’s certainly interest in being able to buy Australian RMBS in foreign currencies, and although this is not currently practical given the lack of a master-trust regime, there is definitely strong interest in master trusts. This will allow issuers to produce foreign-currency and fixed-rate notes.

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G AV I N F R I E N D N AT I O N A L A U S T R A L I A B A N K

Australia is well placed in debt-to-GDP terms against its international comparisons, at just less than 20 per cent. Even though S&P Global Ratings suggests that 30 per cent is the threshold for a triple-A economy, you can counter this by saying there is still flexibility – interest rates can be cut further, for example, while the exchange rate will be a useful buffer if commodity prices were to fall.

VA N E S S A D O C H E R T Y K I N G & W O O D M A L L E S O N S

In 2015, Australia had the most active securitisation market in the world with close to A$30 billion of issuance. It’s in a very healthy state and it’s something to which the UK market – which is rather frozen at the moment – would aspire.

J A C Q U E L I N E F OX N AT I O N A L A U S T R A L I A B A N K

Australian three-year average-life RMBS issued by local major banks tracks fairly closely to the five-year senior-unsecured levels of the same issuers. The gap has widened a little in 2016, which implies that there is some relative value to be had right now in RMBS, and our expectation is that the gap will lessen over time.

L I A M C A R D E N C O M M O N W E A LT H B A N K O F A U S T R A L I A

Our arrears remain low. Conservative underwriting standards, serviceability tests and improved collection operational processes mean that investors are happy with the credit.