AUSTRALIAN SECURITISATION FORUM Australian Market Review and Outlook. Ken Hanton May 2018

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1 AUSTRALIAN SECURITISATION FORUM Australian Market Review and Outlook Ken Hanton May 2018

2 Australian Bond Market Source: Australian Fixed Income Securities in a Low Rate World. Christopher Kent, RBA, Assistant Governor (Financial Markets) 14 March 2018 AUD Billion Equivalent 2,000 1,800 1,600 1,400 1,200 1, Bonds on Issue Domestically and Offshore 1,000 Total (LHS) Banks and FIs 900 Corporations RMBS/ABS 800 CGS & Semis Non Residents 700 Source: RBA, NAB Dec-17 Dec-16 Dec-15 Dec-14 Dec-13 Dec-12 Dec-11 Dec-10 Dec-09 Dec-08 Dec-07 Dec-06 Dec-05 Dec-04 Dec-03 Dec-02 Dec-01 Dec Page 2

3 Australian Collateral-Backed RMBS Issuance A$M Equivalent 40,000 35,000 30,000 25,000 20, ,000 10,000 5,000 - Source: NAB, Bloomberg Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Page 3

4 Australian Collateral-Backed RMBS Issuance A$M Equivalent 40,000 35,000 30,000 25,000 20,000 Non ADIs Other ADIs Regional and Large ADIs Big 4 ADI 15,000 10,000 5,000 - Source: NAB, Bloomberg YtD17 YtD18 RMBS Ytd 18 Big 4 12,261 7,850 7,575 5,050 2,000 Regional and Large 9,830 10,274 3,820 13,451 1,250 Other 1,999 1, , ADI RMBS 24,090 19,374 11,695 22,501 4,150 Non ADI 6,702 4,575 7,387 14,154 4,100 Page 4 Total 30,792 23,949 19,082 36,655 8,250

5 Australian Collateral-Backed RMBS Market Outstandings (Excludes Internal Securitisations) AUD Millions 160, , , , , , ,000 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 Apr 05 Source: Bloomberg, NAB Oct 05 Apr 06 Oct 06 Apr 07 Oct 07 Apr 08 Oct 08 Apr 09 Oct 09 Apr 10 Oct 10 Apr 11 Page 5 Oct 11 Apr 12 Oct 12 Apr 13 Big 4 Other ADI Non-ADI Prime Non-ADI Non-Conforming Oct 13 Apr 14 Oct 14 Apr 15 Oct 15 Apr 16 Oct 16 Apr 17 Oct 17 Apr 18

6 Australian Collateral-Backed RMBS Market Outstandings (Excludes Internal Securitisations) Total Market Outstandings AUD Only Outstandings AUD Millions 160, , , , , , ,000 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 Source: Bloomberg, NAB Big 4 Other ADI Non-ADI Prime Non-ADI Non-Conforming AUD Millions 160, , , , , , ,000 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 Source: Bloomberg, NAB Big 4 Other ADI Non-ADI Prime Non-ADI Non-Conforming Apr 18 Apr 17 Apr 16 Apr 15 Apr 14 Apr 13 Apr 12 Apr 11 Apr 10 Apr 09 Apr 08 Apr 07 Apr 06 Apr 05 Apr 18 Apr 17 Apr 16 Apr 15 Apr 14 Apr 13 Apr 12 Apr 11 Apr 10 Apr 09 Apr 08 Apr 07 Apr 06 Apr 05 Page 6

7 Australian Collateral-Backed RMBS Net Market Issuance (Excludes Internal Securitisations) AUD Millions 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10, ,000-20,000-30,000-40,000-50,000-60,000 Apr 05 Oct 05 Apr 06 Oct 06 Apr 07 Oct 07 Apr 08 Oct 08 Apr 09 Oct 09 Apr 10 Annual Issuance Volume Annual Redemptions Annual Net Issuance Oct 10 Apr 11 Oct 11 Apr 12 Oct 12 Apr 13 Oct 13 Apr 14 Oct 14 Apr 15 Source: Bloomberg, NAB Oct 15 Apr 16 Oct 16 Apr 17 Oct 17 Apr 18 Page 7

8 Australian Collateral-Backed RMBS Pricing Spread Jan 14 Australian Collateral Backed RMBS Primary Market Pricing AAA Prime Deals 2.5yr -3.5yr WALs vs Major Bank 5yr FRNs Apr 14 Big 4 5yr FRN (Secondary Mkt) Big 4 RMBS Regional and Large ADI RMBS Other ADI RMBS Non ADI RMBS USD IG EUR IG Source: NAB, Yieldbroker, Bloomberg Jul 14 Oct 14 Jan 15 Apr 15 Jul 15 Oct 15 Dec 15 Mar 16 Page 8 Jun 16 Sep 16 Dec 16 Mar 17 Jun 17 Sep 17 Dec 17 Mar 18

9 Australian Collateral-Backed RMBS Secondary Market Pricing (Prime AAA rated notes 2.5yr -3.5yr WALs) BPS over BBSW May 14 Nov 14 May 15 Source: NAB Big 4 Regional and Large ADIs Other ADIs Non ADIs Nov 17 May 17 Nov 16 May 16 Nov 15 May 18 BPS over BBSW May 14 Nov 14 May 15 Nov 15 May 16 Big 4 RMBS Big 4 5yr FRN Big 4 3yr FRN Source: NAB, Yieldbroker Nov 17 May 17 Nov 16 May 18 Page 9

10 Australian Collateral-Backed ABS Issuance A$M Equiv 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 Source: NAB, Bloomberg A$M Equiv 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1, Source: NAB, Bloomberg Ytd17 Ytd18 0 Auto Auto/Equip Equipment Consumer SME Ytd Auto 3,521 3, ,218 3,596 4, Auto/Equip 1, ,209 3,359 1, Equipment Consumer , SME Total 5,106 5,803 5,097 6,372 6,873 8,404 1,499 Page 10

11 ABS Pricing Senior AAA Rated Tranches Primary Market BPS over BBSW Auto Auto / Equipment Equipment Consumer SME FY15 FY16 FY Driver Australia Two Trust SMART ABS Series US Trust Crusade ABS Series Trust Flexi ABS Trust SMART ABS Series Flexi ABS Trust REDS EHP Trust Liberty Series SME SMART ABS Series E Trust Liberty Series Auto CNH Industrial Capital Australia Receivables Driver Australia Three Trust Crusade ABS Series Flexi ABS Trust SMART ABS Series Liberty Series SME Think Tank Series Trust SMART ABS Series FP Turbo Series Page 11 Flexi ABS Trust Crusade ABS Series Latitude Australia Credit Card Loan Note Trust Driver Australia Four Trust SMART ABS Series CNH Capital Australia Receivable Trust Series Liberty Series SME Latitude Australia Credit Card Loan Note Trust Eclipx Turbo Series Trust Latitude Australia Personal Loan Series Liberty Series Auto Think Tank Series Trust Latitude Australia Credit Card Loan Note Trust Driver Australia Five Trust Flexi ABS Trust

12 Australian Collateral-Backed RMBS Arrears 20.0% 18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% S&P Australian RMBS Arrears (Excluding non-capital market issues) Non-Conforming 30+ days' (LHS) Non-Conforming 90+ days' (LHS) Prime 30+ days' (RHS) Prime 90+ days' (RHS) 2.0% 1.8% 1.6% 1.4% 1.2% 1.0% 0.8% 0.6% 0.4% 2.0% 0.0% Source: S&P, NAB 0.2% 0.0% Feb 08 Feb 09 Feb 10 Feb 11 Feb 12 Feb 13 Feb 14 Feb 15 Feb 16 Feb 17 Feb 18 Page 12

13 Australian Collateral-Backed RMBS Arrears 2.00% 1.80% 1.60% 1.40% 1.20% 1.00% 0.80% 0.60% 0.40% S&P Australian RMBS Arrears (Excluding non-capital market issues) Prime 30+ days' (LHS) Prime 90+ days' (LHS) Non-Conforming 30+ days' (RHS) Non-Conforming 90+ days' (RHS) 10% 9% 8% 7% 6% 5% 4% 3% 2% 0.20% 0.00% Source: S&P, NAB 1% 0% Feb 13 May 13 Aug 13 Nov 13 Feb 14 May 14 Aug 14 Nov 14 Feb 15 May 15 Aug 15 Nov 15 Feb 16 May 16 Aug 16 Nov 16 Feb 17 May 17 Aug 17 Nov 17 Feb 18 Page 13

14 Australian RMBS Market Prepayment Rates 35% Source: S&P, Fitch, Moody's, NAB 30% 25% 20% 15% S&P Prime S&P Non-Conforming Fitch CPR 10% Moody's CPR Dec 07 Jun 08 Dec 08 Jun 09 Dec 09 Jun 10 Dec 10 Jun 11 Dec 11 Jun 12 Dec 12 Jun 13 Dec 13 Jun 14 Dec 14 Jun 15 Dec 15 Jun 16 Dec 16 Jun 17 Dec 17 Page 14

15 Australian RMBS Market Prepayment Rates 30% 28% 26% 24% 22% 20% Source: S&P, ABS, RBA, Corelogic, NAB 15% 10% 5% 18% 16% 14% 12% 10% S&P Prime Variable Mortgage Rate Unemployment Rate Dwelling Price Growth 0% -5% Dec 07 Jun 08 Dec 08 Jun 09 Dec 09 Jun 10 Dec 10 Jun 11 Dec 11 Jun 12 Dec 12 Jun 13 Dec 13 Jun 14 Dec 14 Jun 15 Dec 15 Jun 16 Dec 16 Jun 17 Dec 17 Page 15

16 Australian RMBS Market Prepayment Rates 40% Source: S&P, Corelogic, NAB 20% 35% 15% 30% 10% 25% 5% 20% 15% S&P Non-Conforming (LHS) Dwelling Price Growth (RHS) 0% -5% 10% -10% Sep 07 Mar 08 Sep 08 Mar 09 Sep 09 Mar 10 Sep 10 Mar 11 Sep 11 Mar 12 Sep 12 Mar 13 Sep 13 Mar 14 Sep 14 Mar 15 Sep 15 Mar 16 Sep 16 Mar 17 Sep 17 Mar 18 Page 16

17 Auto ABS Arrears 2.00% 1.80% 1.60% 1.40% 1.20% 1.00% 0.80% Source: Fitch, Moody's AUD Bill % % 0.20% Fitch 30+ days' Fitch Outstandings (RHS) Moody's 30+ days' Moody's Outstandings (RHS) % - Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Page 17

18 Auto ABS Recoveries and Losses 0.80% 80% 0.70% 70% 0.60% 60% 0.50% 50% 0.40% 40% 0.30% 30% 0.20% Annualised Net Loss Rate (LHS) Historical Recovery Rates (RHS) 20% 0.10% 0.00% Source: Fitch, NAB Dec 11 Mar 12 Jun 12 Sep 12 Dec 12 Mar 13 Jun 13 Sep 13 Dec 13 Mar 14 Jun 14 Sep 14 Dec 14 Mar 15 Jun 15 Sep 15 Dec 15 Mar 16 Jun 16 Sep 16 Dec 16 Mar 17 Jun 17 Sep 17 Dec 17 10% 0% Page 18

19 Auto ABS Prepayment Rates 50% Fitch's Australian Auto ABS Payment Rates 45% 40% 35% 30% 25% 20% 15% 10% Conditional Payment Rate Average Absolute Payment Rate 5% 0% Source: Fitch, NAB Dec 11 Mar 12 Jun 12 Sep 12 Dec 12 Mar 13 Jun 13 Sep 13 Dec 13 Mar 14 Jun 14 Sep 14 Dec 14 Mar 15 Jun 15 Sep 15 Dec 15 Mar 16 Jun 16 Sep 16 Dec 16 Mar 17 Jun 17 Sep 17 Dec 17 Page 19

20 Regulation Prudential Standard APS 120 Securitisation Effective 1 January 2018 Prudential Standard APS 210 Liquidity Effective 1 January 2018 July Unquestionably Strong: IRB Banks CET1 >10.5%, Standardised Bank requirements increased by an average 50bps. Expected to be met by 1 January February Revisions to the capital framework and the leverage ratio requirement for ADIs Discussion Papers Revised prudential standards for standardised and IRB approaches to credit risk to be released in 2H18. To be implemented on 1 January Leverage ratio requirements to come into effect 1 July Existing and Proposed Residential Mortgage Risk Weights Current and Proposed Standardised Approach Current Owner-Occupied P&I Investment I/O and SME APS112 Risk Weight Proposed Risk Weight Proposed Risk Weight LVR % Standard Non-Std Standard Non-Std Standard Non-Std % 35% 20% 100% 30% 100% > % 35% 25% 100% 35% 100% > % 50% 30% 100% 45% 100% > % 75% 40% 100% 60% 100% > % 75% 50% 100% 75% 100% >100 75% 100% 70% 100% 85% 100% Source: APRA Discussion Paper: Revisions to the capital framework for authorised deposit-taking institutions Page 20

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MLC Quarterly Australian Wealth Sentiment Survey Q1 2014

MLC Quarterly Australian Wealth Sentiment Survey Q1 2014 Q1 14 Consumer balance sheets are becoming more conservative, with a heavy emphasis on deposits and paying off debt, and a decline in intentions to invest in direct and superannuation. Less than % of Australians