Despite the tightening of financial conditions, securitisation issuance remains resilient. This was the overall message from most sessions and in the keynote speech at the ASF Conference in Sydney

In the keynote speech, Carl Schwartz, acting head of domestic markets at the Reserve Bank of Australia, first outlined how the securitisation market has evolved over recent years.

Schwartz told the audience of bankers, issuers and investors that although support measures announced from March 2020 by various government agencies – including the RBA – saw ABS yield spreads to the bank bill swap rate reach the lowest levels since the global financial crisis, by late 2022 yield spreads for AAA-rated ABS deals were back to, or above, their level at the start of the period. 

Spreads peaked not long after the commencement of the cash rate tightening phase in May 2022, and have moved lower since, Schwartz said.

"The big swings were evident in the AAA-rated notes of both RMBS and other ABS, and were even larger for lower-rated mezzanine debt," he said.

"Relative to past experience, movements in AAA-rated notes were largely contained to the broad range of post GFC pricing, but the speed of the adjustments was unprecedented in the post-GFC period."

According to the RBA, annual issuance has been broadly maintained at around A$50 billion over 2022 and 2023, the same level reached through 2021. 

"This has occurred even as system credit growth slowed; from around 9 per cent a year ago to around 5 per cent more recently," Schwartz said.

There have been two broad shifts underpinning the strength in issuance: increased issuance by non-banks; and growth in different types of loans being securitised.

"Non-banks continued to increase their share of issuance through the pandemic period and they now account for around three-quarters of ABS issuance," Schwartz said.

They were no doubt helped indirectly by the RBA's Term Funding Facility, which offered low-cost three-year funding to banks between April 2020 and June 2021. 

It ultimately provided $188 billion in funding to banks, and allowed the banks to largely ignore issuance across senior unsecured debt, covered bonds and ABS during the TFF drawdown period. 

A second reason for the increase in non-bank market share has been an increase in the number of non-banks issuing ABS. This year around 30 different non-bank lenders have issued ABS, a three-fold increase from about a decade ago. 

In contrast, the number of banks issuing ABS has declined over the same period, with about ten banks issuing this year.

"One consequence of these new entrants and shifting practices is that concentration in the securitisation market has fallen, particularly for non-mortgage ABS," Schwartz said. 

"About a decade ago, the top four issuers of non-mortgage ABS accounted for nearly all issuance. Today they represent about half of the issuance."

As interest rates started increasing in mid-2022, funding costs for financial institutions increased but by more for non-banks than for banks, ensuring refinancing activity is flowing back to the major banks.

Anecdotally, this was confirmed by one of the later panel sessions when the return of larger scale covered bond issuance from the