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JP Morgan calls on government to fund non-banks

A JP Morgan executive has labelled non-bank funding a ‘critical’ issue that urgently requires additional support.

Speaking at the Finsia annual conference last week, JP Morgan executive director Sofie Sullivan-Becaus said the non-banks’ current reliance securitisation is preventing them from writing more business.

“There needs to be a framework for non-banks to thrive in the Australian lending market,” Sullivan-Becaus said.

“I think access to funding is absolutely critical for the non-bank sector,” she said. “The moment that dries up, and we have seen it happen, then the game is over.”

Ms Sullivan-Becaus said a “back-up plan” would give non-banks the confidence to increase their volumes.

“We had it with the AOFM (Australian Office of Financial Management),” she said.

“The AOFM stepped in and I wouldn’t say that we need them there all the time, but maybe to flick on the switch again if and when required to continue to support the non-bank sector would be very helpful.

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“That would give the non-banks the confidence to write more volume on a monthly basis.”

The current attitude of many non-bank lenders is one of caution, Ms Sullivan-Becaus said, adding that non-banks are reluctant to be aggressive with their volumes because of uncertainty with RMBS issuance.

“At the moment the attitude is ‘Should we really go out there and write all the volume that we can possibly write? Should we start writing $200 million or $300 million a month, and then all of a sudden we have $3 billion of RMBS issuance to do every year as a non-bank?’” she said.

“Pre-GFC that wasn’t an issue.

“You may be able to start issuing those amounts today, but what if there is a little hiccup? That could dry up very quickly.

“So I think having access to funding and having a back-up plan there in case the market dries up would be critical.”

Meanwhile, the Australian RMBS market is booming.

The last 18 months has seen the largest RMBS transactions by non-banks since before the GFC, according to wholesale funder and Columbus Capital executive director Andrew Chepul.

“You have seen a situation where the amount of capital inflow both domestically and offshore has been quite significant and the volume of securitisation transactions occurring is probably the largest in the last seven years,” Mr Chepul said.

“You are seeing a lot more offshore names coming in and buying Australian bonds,” he said.

Non-banks are constantly being driven to inject more capital into their businesses as the idea of ‘skin in the game’ becomes increasingly important, Mr Chepul said.

“The non-banks of today are quite significantly capitalised. It is not a situation of a dollar in and 10 dollars out,” he said. “It is actually quite significant.”

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