Residential mortgage-backed securities (RMBS) continue to gain traction across Australia’s lending landscape, with a series of large deals highlighting the growing scale of the country’s non-bank sector and sustained investor appetite for credit.
Earlier this month, non-bank lender ColCap priced a $3 billion RMBS, the largest-ever RMBS transaction by an Australian non-bank lender. The deal surpassed ColCap’s previous record of $2.7 billion, set in February.
That same week, Australian Finance Group's (AFG) funding arm, AFG Securities, priced a $1.2 billion RMBS. There's also billion-dollar issuances from the likes of non-bank lenders Firstmac, MA Money and Liberty Financial Group. The back-to-back jumbo prints underscore the expanding scale of Australia’s non-bank sector and strengthening investor appetite for credit Down Under.
"It's a positive development," David Carroll, treasurer at ColCap, told Australian Broker. "This year will probably be a record year for securitization. But that's across both residential mortgages and other types of loan assets, generally auto loans, commercial mortgages or credit cards. Last week saw $10 billion of securitisations across autos and residential mortgages."
That's a major step-up from the more than $60 billion priced in Australia last year.
More broadly, rising securitizations signal that non-banks are expanding, giving them more firepower to write additional loans, increase origination volumes, broaden product offerings and capture greater market share. They also reflect growing investor and borrower demand in Australia’s mortgage market.
At the same time, traditional banks are tightening their lending standards, leaving more space for non-bank lenders to step in.
"The whole non-bank sector is very active at the moment with significant asset growth seen by most participants," Carroll explained. "ColCap funds its lending through a combination of bank warehouse lines and the issuance of residential mortgage-backed securities through capital markets."
Growing activity also creates opportunities for brokers, who stand to benefit by understanding the full range of lending options available to their clients, including non-banks. A broader view of the market can help brokers match borrowers with suitable products, navigate more complex credit needs and identify lending solutions that may not be available through traditional banks.
"The more active ColCap is in capital markets means we have more funds available to fund new loans through brokers," Carroll said. "The reason we have $3 billion of prime loans is we're a very active lender. More than half of our originations come through brokers. So the more that we can securitize means the more we can lend, the more that we can source new loans through brokers."
The supersized issuances are also a sign of increased investor confidence, in both ColCap and the larger Australian lending environment.
"The Australian capital markets are stable, geopolitically, with a good regulatory environment. The assets are stable and well-performing. Our arrears are low and that's what investors are buying," Carroll explained. "They're buying asset performance. They know they'll get their money back. The Australian property market has been rising for a long time, so refinance actively has been strong, although this may slow with recent interest rate rises this year along with regulatory and tax changes. The investors know that they're going to get payback. Most global participants will look at Australia, even if their home market is Japan or the UK or the US. They will still look to invest in Australia for diversification and sometimes for yield pick up as well."
In the case of ColCap, the diverse pool of investors provides a picture of how investors view the lender and the quality of its loan book.
"The fact that we could do large RMBS issuances indicates that investors, both Australian and international, have faith in ColCap as a business, and also in the underwriting and asset performance that we're originating," Carroll said.
