In its Structured Finance Outlook 2019 report, ratings agency Standard &Poor’s has said that it expects the non-bank sector to “dominate” the issuance of new home loans in the coming year as it continues to benefit from the change in lending standards among authorised deposit-taking institutions (ADIs).
“Many Australian bank issuers remained on the sidelines in the past year, leaving the non-bank sector to pick up the slack,” S&P said.
The ratings agency observed that new issuance from the non-bank sector made up 60 per cent of the 2018 total, up from 31 per cent a year earlier.
“Even as home-lending growth slowed to around 5 per cent, the non-banks were able to achieve lending growth rates more than double their banking peers by capitalising on a tightening of lending standards in the [ADI] sector,” the ratings agency continued.
However, S&P observed that while the estimated non-bank share of the residential lending space has increased, it remains less than 5 per cent of total mortgages.
S&P added that despite the lifting of the Australian Prudential Regulation Authority’s (APRA) cap on interest-only and investor lending, it is “unlikely” to have a “material impact” on lending growth rates among ADIs in the short term, particularly as lenders tighten serviceability measures ahead of the release of the financial services royal commission’s final report.
“Many lenders are applying greater scrutiny to expenses in their debt-serviceability assessments, and this is tightening many borrowers’ access to finance,” S&P continued.
“Lending standards are likely to remain more stringent in the wake of the publication of the final report on the royal commission findings, which is due to be released in February 2019.”
Additionally, S&P noted that it expects mortgage issuance via the non-bank sector to increase off the back of investment interest from European and Asian investors.
“European investors’ interest could be tempered by the closure of central bank schemes that have depressed bank-originated European structured finance volumes for several years, given the availability of cheaper funding alternatives,” the ratings agency added.
“Interest from Japanese investors remains strong, and interest from other parts of Asia has increased.
“Given these trends, we expect RMBS issuance in 2019 to be up slightly year-on-year.
“In addition to another strong year of issuance from the non-bank sector, we expect a number of bank issuers that did not come to market in 2018 to issue in 2019.”
Moreover, S&P stated that it also expects growth in the issuance of loans to small and medium-sized businesses from the non-bank sector, pointing to the federal government’s proposed introduction of a new $2 billion SME fund.
“The initiative is intended to address the difficulty small businesses face in obtaining finance other than on a secured basis,” the ratings agency observed.
“The fund should lead to increased new issuance in the small to medium-sized enterprise space.”