* Discussion paper on review of structured finance due this
* First A$ credit card securitisation seen possible in 2014
* Australian major banks likely first issuers
By Cecile Lefort
SYDNEY, Sept 4 Australia's financial regulator
may liberalise the country's structured finance market, making
changes that could open the way for banks to securitise credit
card debt for the first time.
The move, which could happen as early as next year, would
create new funding sources for Australian banks and bring
diversity to a market dominated by mortgage-backed securities.
Worth A$110 billion ($99 billion), Australia's structured
finance market is among the five largest in the world, but
unlike Europe and the United States, Australia has yet to see
securitisation of credit card debt.
That could soon change as the Australian Prudential
Regulation Authority (APRA), one of the world's toughest
regulators, is considering allowing the use of master trust
"Depending on APRA's review, we may get a master trust
structure which will then allow the securitisation of credit
card portfolios," said Sofie Sullivan, head of the securitised
product group at JPMorgan in Sydney.
Common in Europe, master trust structures allow borrowers to
securitise a revolving pool of assets, meaning they can
substitute loans that are prepaid with new ones. This provides
investors with greater income certainty.
Australian securitisation is currently confined to closed
pool structures in which pre-paid loans cannot be replaced.
That works well for assets such as mortgages with
predictable repayment schedules, but less so for credit card
A standard draft or discussion paper is expected this month
and industry sources said the review could pave the way for
Australia's first securitised credit card offer next year.
Once permitted, securitisation of credit card portfolios is
expected to start slowly with initial deal sizes of between
A$750 million and A$1 billion. Eventually, the market size could
reach A$10 billion to A$15 billion, with demand from U.S. and
European investors underpinning it, according to JPMorgan.
Presently, residental mortgage-backed securities account for
about 90 percent of the Australian structured finance market
with commercial mortgaged-backed debt and car loan receivables
making up the rest, according to data from ThomsonReuters and
the Reserve Bank of Australia.
Investors and borrowers will both welcome the introduction
of master trust structures.
Fund managers will like the greater income security they
provide and the choice of new asset classes to invest in.
"Any development for new opportunities to put money to work
is very constructive," said John Manning, a senior investment
manager at Aberdeen Asset Management, which has around A$13
billion in fixed income under management.
For their part, banks will like a more efficient, and
therefore cheaper, form of funding provided by master trusts,
that will make it more attractive securitise the credit card
Data from the Reserve Bank of Australia shows that lenders
were holding about A$50 billion of credit credit loans as of
"Banks would consider securitising assets that they don't do
today such as short-dated credit cards because it would add
different investors into the mix, while creating diversification
and better matched liabilities to assets," said Satish Chand, an
executive director at debt advisory firm Magma Capital.
Credit card securitisations could even appeal to individual
investors, predominantly high net worth investors, because there
are not enough high-yielding debt products in Australia to meet
"Clearly, demand for appropriately priced and higher
yielding debt is there," said Chris Selby, head of private
wealth management at Deutsche Bank. "The question is whom we can
rely on in terms of pool quality?"
Selby said his clients would feel more comfortable with
assets that the nation's largest banks originated. Those banks,
according to J.P. Morgan's Sullivan, were the most likely
candidates to securitise credit card receivables.
So far, Australia and New Zealand Banking Group,
Commonwealth Bank of Australia, National Australia Bank
and Westpac Banking Corp, which are among the
world's largest and safest banks, have kept credit card loans on
their balance sheets.
Australia's banks are extremely profitable, but with rising
costs of capital stemming from a stricter global regulatory
framework under Basel III, banks are more than ever taking a
closer look at their funding alternatives.
($1 = 1.1036 Australian dollars)
(Editing by Simon Cameron-Moore)