Australia’s Central Bank on Non-Bank Lenders: Risks are Limited
The Reserve Bank of Australia (RBA) has stated that the risks from non-bank lenders in securitization are limited, citing the resilient labor market, which supports households and businesses, and the small size of the sector overall.
Reserve Bank of Australia’s Assessment
According to David Jacobs, head of domestic markets department at the RBA, while there is a potential for risk to build up in the securitization market, there are limited signs of strain so far.
Key Factors Contributing to Limited Risks
Jacobs emphasized that the key factors contributing to the limited risks from non-bank lenders include the small size of the sector, limited connections to the rest of the financial system, and their funding being sourced mainly from sophisticated investors.
Arrears Rates for Residential Mortgage-Backed Securities
Jacobs noted that arrears rates for residential mortgage-backed securities (RMBS) were similar to those of mortgages extended by banks, and it was not clear that the relative risks of RMBS had shifted noticeably.
Labour Market and Interest Rates
The RBA has kept interest rates at a 12-year high of 4.35% for an entire year, but the labor market has remained surprisingly strong, a reason markets have not fully priced in a rate cut until May next year.
Conclusion
In conclusion, the Reserve Bank of Australia’s assessment suggests that the risks from non-bank lenders in securitization are limited due to the small size of the sector, limited connections to the rest of the financial system, and their funding being sourced mainly from sophisticated investors. The resilient labor market and the strong interest rates also contribute to the limited risks.
