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AOFM puts $2bn finance fund on hold

The federal government’s fund manager has paused investment rounds on the $2-billion Australian Business Securitisation Fund in light of current market conditions.

The Australian Office of Financial Management (AOFM) has announced that it will not be calling for another round of investment proposals for the Australian Business Securitisation Fund (ABSF) at this time, stating that this work should remain on hold in the current environment.

The federal government announced the $2-billion Australian Business Securitisation Fund (ABSF) in November 2018 to help provide additional funding to small-business lenders.

The securitisation fund, administered by the AOFM, was established to provide funding to smaller banks and non-bank lenders to on-lend to small businesses on more competitive terms.

The ABSF Bill 2019 officially passed both the House of Representatives and the Senate in April 2019.

In July 2019, the AOFM released the finalised guiding principles for those wishing to access the fund, and provided principles-based guidelines rather than prescriptive ones.

In April 2020, the AOFM announced the first approved investment by the ABSF, in securities issued by a warehouse vehicle sponsored by Judo Bank. It said it intended to invest the first tranche of $250 million in securities issued by the warehouse vehicle.

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At the same time, the AOFM revealed that it would make an assessment of market conditions in early July before calling for further ABSF investment proposals.

The AOFM has now said that this work should now remain on hold given the current market conditions.

“While conditions have improved in the Australian securitisation market since early April, they remain challenging,” it said.

“Moreover, the AOFM sees its mandate with regards to the ABSF as primarily an exercise in market development. This will be achieved through sponsoring the establishment of a track record in different types of SME lending under a standardised loan level data template.

“It is expected that this track record will support the work of credit rating agencies and ultimately private sector investment in this asset class.”

The AOFM further added that while the design of a data template has progressed, the ABSF-sponsored working group carrying out this work with the AOFM was temporarily suspended in March.

It will provide further updates on its deliberations with regard to the ABSF by no later than the end of September.

“The AOFM is well placed to monitor market developments closely through its work with the SFSF (Structured Finance Support Fund),” it said.

The ABSF began accepting proposals from SME lenders wanting to access the fund’s investments in securitisation of loans in December 2019.

In March this year, the federal government provided the AOFM with an investment capacity of $15 billion to invest in wholesale funding markets used by small authorised deposit-taking institutions (ADIs) and non-ADI lenders.

[Related: Non-banks urged to service ‘unmet demand’ for debt funding]

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