Securitisation industry participants and SME lenders have until the end of next week to make their submissions to a Treasury review of the Australian Business Securitisation Fund, which is looking at whether the program is meeting its goals.
With just three investments under its belt since it was set up in 2019, it appears at first sight that there is room for improvement.
Administered by the Australian Office of Financial Management, the ABSF was set up to increase the availability of credit for small business by investing in securitisation warehouse facilities and term securitisations of small business lenders.
The government has made A$1 billion available for investment since the fund was launched and has another $1 billion earmarked for the scheme.
Treasury has asked for responses to a number of questions, including whether the ability of lenders to provide SME finance has improved and to what extent this can be attributed to the ABSF, and to what extent ABSF activity has influenced SME loan rates.
It also wants to know whether the principles and processes established for the ABSF by the AOFM are appropriate and whether the legislative settings remain fit for purpose.
The ABSF made its first investment in Judo Bank in April 2020 but a few months later the AOFM put the program on hold, citing challenging conditions in the securitisation market and delays in creating a data template for the scheme.
It reactivated the program in February last year, when it invited proposals for investment.
In September, ABSF investment manager CIP Asset Management approved an $87.5 million mezzanine investment in a warehouse sponsored by GetCapital and arranged by NAB, which is also the senior financier.
It also approved a $30 million mezzanine investment in a warehouse sponsored by OnDeck Australia and arranged by Credit Suisse, which is also the senior financier.
One barrier to SME securitisation market development has been a lack of consistent loan performance reporting. As part of the ABSF program, the AOFM and the Australian Securitisation Forum have worked on the development of standardised SME loan reporting.
Treasury is looking for feedback on whether the reporting template that has been developed is fit for purpose.
Speaking at an ASF conference last year, Judo Bank treasurer Michael Heath said SME lending is complex because the businesses are structured for asset protection and tax planning. There are different legal entities, sometimes in the one business, and there may be multiple collateral items for one loan.
“It is a challenge to work through. The idea for the template was to focus on the commonalities of the asset class, while also catering to the diversity of collateral types (secured, unsecured) and collateral items,” he said.
James Donovan, the head of funding at Shift (formerly GetCapital) said: “Securitisation of SME lending is difficult because the market lacks homogeneity. If we can get this right, there is no reason the market would not move towards public securitisation of SME lending.”
Catherine de Fontenay, a commissioner at the Productivity Commission, said the ABSF initiative has helped by increasing the volume of investment in the sector and