MEB tweaks funding options 12 February 2009 5:29PM John Kavanagh Members Equity Bank marked a significant shift in the structure of its business yesterday when it completed its first internal securitisation.Fitch Ratings reported that it had assigned final ratings to SMHL Series 2008-1 Fund, a $114 million pool of residential mortgage backed floating rate notes.The AAA rating on the $112 million class A notes makes them eligible for repurchase by the Reserve Bank.Until recently MEB could not have done an internal securitisation. For almost all of its existence it has used the capital market to fund its lending, not its own balance sheet.The bank's chief financial officer Nick Vamvakas said the group started carrying loans on balance sheet after it realised that the securitisation market would be closed indefinitely. Out of a total loan portfolio of $16 billion it has $1.2 billion on balance sheet, $700 million of which has been written since July last year. Vamvakas said MEB had always been a deposit taker. It has offered a transaction account and term deposits since it started and launched an online savings account three years ago.But the deposit side of the business was much smaller than the lending side and the bank never relied on deposits to fund loans.Vamvakas said the flow of deposits was strong but had some way to go before it could make up for the closure of the RMBS market. When it had access to funds from the capital market, MEB was writing $200 million of loans a month.The bank has limited distribution. Most of it is direct, through the internet. The bank also has a team of mobile lenders who can sell deposit products. MEB has four branches (one in Brisbane, two in Canberra and one in Melbourne) and is planning to open at least two more this year. MEB got one RMBS issue away late last year after it was selected by the Australian Office of Financial Management as one of four lenders to receive support under the Australian government's $8 billion program to support the local RMBS market.AOFM invested $500 million in SMHL Series 2008-2 Fund and MEB was able to raise an additional $100 million from the market.Vamvakas said MEB had put in an application for funding in the next round of AOFM deals, which are due to be announced soon.