AUSTRALIAN SECURITISATION FORUM Australian Market Review and Outlook Ken Hanton May 2018
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 1,000 800 600 400 200 0 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-00 600 500 400 300 200 100 0 Page 2
Australian Collateral-Backed RMBS Issuance A$M Equivalent 40,000 35,000 30,000 25,000 20,000 2012 2013 2014 2015 2016 2017 2018 15,000 10,000 5,000 - Source: NAB, Bloomberg Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Page 3
Australian Collateral-Backed RMBS Issuance A$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 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 YtD17 YtD18 RMBS 2014 2015 2016 2017 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 1,250 300 4,000 900 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
Australian Collateral-Backed RMBS Market Outstandings (Excludes Internal Securitisations) AUD Millions 160,000 150,000 140,000 130,000 120,000 110,000 100,000 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
Australian Collateral-Backed RMBS Market Outstandings (Excludes Internal Securitisations) Total Market Outstandings AUD Only Outstandings AUD Millions 160,000 150,000 140,000 130,000 120,000 110,000 100,000 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 160,000 150,000 140,000 130,000 120,000 110,000 100,000 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
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 0-10,000-20,000-30,000-40,000-50,000-60,000 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
Australian Collateral-Backed RMBS Pricing Spread 200 190 180 170 160 150 140 130 120 110 100 90 80 70 60 50 40 30 20 10 0 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
Australian Collateral-Backed RMBS Secondary Market Pricing (Prime AAA rated notes 2.5yr -3.5yr WALs) BPS over BBSW 170 160 150 140 130 120 110 100 90 80 70 60 50 40 30 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 170 160 150 140 130 120 110 100 90 80 70 60 50 40 30 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
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 1,000 500 Source: NAB, Bloomberg 2012 2013 2014 2015 2016 2017 2017 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Ytd17 Ytd18 0 Auto Auto/Equip Equipment Consumer SME 2012 2013 2014 2015 2016 2017 2018 Ytd Auto 3,521 3,495 633 2,218 3,596 4,387 699 Auto/Equip 1,330 900 4,209 3,359 1,987 352 - Equipment - 888-210 350 450 - Consumer 255 270 255 285 260 2,416 800 SME - 250-300 680 800 - Total 5,106 5,803 5,097 6,372 6,873 8,404 1,499 Page 10
ABS Pricing Senior AAA Rated Tranches Primary Market BPS over BBSW 210 190 170 Auto Auto / Equipment Equipment Consumer SME FY15 FY16 FY17 150 130 110 90 70 50 Driver Australia Two Trust SMART ABS Series 2015-1US Trust Crusade ABS Series 2015-1 Trust Flexi ABS Trust 2015-1 SMART ABS Series 2015-2 Flexi ABS Trust 2015-2 REDS EHP Trust 2015-1 Liberty Series 2015-1 SME SMART ABS Series 2015-4E Trust Liberty Series 2015-1 Auto CNH Industrial Capital Australia Receivables Driver Australia Three Trust Crusade ABS Series 2016-1 Flexi ABS Trust 2016-1 SMART ABS Series 2016-1 Liberty Series 2016-1 SME Think Tank Series 2016-1 Trust SMART ABS Series 2016-3 FP Turbo Series 2016-1 Page 11 Flexi ABS Trust 2017-1 Crusade ABS Series 2017-1 Latitude Australia Credit Card Loan Note Trust Driver Australia Four Trust SMART ABS Series 2017-2 CNH Capital Australia Receivable Trust Series Liberty Series 2016-2 SME Latitude Australia Credit Card Loan Note Trust Eclipx Turbo Series 2017-1 Trust Latitude Australia Personal Loan Series 2017-1- Liberty Series 2017-1 Auto Think Tank Series 2017-1 Trust Latitude Australia Credit Card Loan Note Trust Driver Australia Five Trust Flexi ABS Trust 2018-1
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
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
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
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
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
Auto ABS Arrears 2.00% 1.80% 1.60% 1.40% 1.20% 1.00% 0.80% Source: Fitch, Moody's AUD Bill 20.0 18.0 16.0 14.0 12.0 10.0 8.0 0.60% 6.0 0.40% 0.20% Fitch 30+ days' Fitch Outstandings (RHS) Moody's 30+ days' Moody's Outstandings (RHS) 4.0 2.0 0.00% - 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
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
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
Regulation Prudential Standard APS 120 Securitisation Effective 1 January 2018 Prudential Standard APS 210 Liquidity Effective 1 January 2018 July 2017 - Unquestionably Strong: IRB Banks CET1 >10.5%, Standardised Bank requirements increased by an average 50bps. Expected to be met by 1 January 2020. February 2017 - 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 2021. Leverage ratio requirements to come into effect 1 July 2019. 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 0-50 35% 35% 20% 100% 30% 100% >50-60 35% 35% 25% 100% 35% 100% >60-80 35% 50% 30% 100% 45% 100% >80-90 35% 75% 40% 100% 60% 100% >90-100 50% 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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