Non-banks dial TFF whaaambulance

Via Banking Day:

A leading non-bank mortgage lender has warned that non-banks originating prime mortgages face tough market conditions, largely as a result of the pricing impact of the Reserve Bank’s term funding facility.

Firstmac chief financial officer James Austin said non-banks have had the benefit of the Australian Office of Financial Management’s Structured Finance Support Fund to assist with their securitisation programs but they have not been given access to the TFF.

Speaking at the Australian Securitisation Forum’s Virtual Symposium yesterday, Austin said: “We are paying 140 basis points for funding and ADIs are paying 10 bps.”

The RBA set up the TFF in March, giving ADIs access to A$90 billion of funding at a fixed interest rate of 25 bps for three years.

ANZ noted in its 2019/20 financial report that it drew down $13 billion under the TFF in the year to September – effectively replacing wholesale funding with cheap RBA funding. NAB drew down $14.3 billion in the year to September and Westpac drew down $17.9 billion.

Funds available under the TFF were increased by $57 billion in September and the interest rate was cut to 10 bps earlier this month.

There have been calls for non-banks to have access to the TFF or a similar facility but so far there has been no action from the government or the central bank.

In the meantime, Austin and other lenders funded through the asset-backed securities market have at least had the benefit of fairly positive market conditions.

The director of global structured credit solutions at Natixis, Milos Ilic-Miloradovic said the Australian securitisation market was outperforming.

Ilic-Miloradovic said: “We see more offshore investors coming into Australia and they are playing in larger tickets. They know the market’s dynamics and Australia’s handling of the pandemic and the stimulus measures are both seen as positives.

“Conditions are good for issuers with offshore programs. Now is the time to look at foreign currency issues.”

Firstmac included Japanese yen notes in an RMBS issue in October. Austin said: “Foreign currency issuance gives your program diversification but there is usually a premium of 10 to 20 basis points to be paid for that.

“With the current lack of ADI issuance, the basis cost for non-ADIs has crunched right down. We can do foreign currency issuance with no premium at the moment.”

Global investors speaking at the conference said they were comfortable taking more Australian RMBS, although some might be approaching their concentration limit for non-banks.

The head of investment credit at State Street, Imran Shaffi, said: “Australia ranks high in terms of its mortgage product. We like full recourse loans. It has performed relatively well.

“We are not hitting our limits but we are getting close.”

Cry me a river. The Australian financial system can only now provide the debt that the economy needs to not implode because it is being progressively nationalised. Non-banks clearly benefit from this in the robust conditions of secruritisation markets would otherwise be shut.

The last thing we need is to add the little credit cavaliers to the big on the taxpayer dime. What we need to extract appropriate board seats and equity from the latter for the taxpayer.

David Llewellyn-Smith
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