Australian Financial Review I November 26, 2013
Bank of Tokyo-Mitsubishi has agreed to provide Australian financial services firm AMP Ltd with a $500 million one-year mortgage-backed facility, a landmark deal that marks the entry of Japan’s banks into the Australian home loan market.
The Japanese bank announced the deal on Monday in which it will provide short-term funds to AMP to write mortgages.
The transaction is more than a year in the making as the conservative Japanese lender undertook an extensive analysis of the local home lending market. The Australian Financial Review reported in September 2012 that Bank of Tokyo was exploring an entry into the Australian mortgage market by providing “warehouse funds” to AMP.
The“warehouse” loan will allow AMP to write mortgages and can be repaid through the issuance of residential mortgage-backed securities.
AMP is a frequent issuer of residential mortgage-backed security and recently raised $650 million through a securitisation transaction. The cost of the one-year loan was not revealed but is understood to be competitive for both AMP and the Japanese lender that is seeking exposure to a strongly performing asset class, by global standards.
Sources said the transaction, finalised last week, brings a new competitor to the market and dispels scepticism that Japan’s banks could get their heads around the mortgage market.
Japanese banks, eager to diversify into good quality international assets, have been eyeing the Australian home loan market for some time, and have chosen to enter by financing competitors to the major banks.The partnership with AMP is understood to be strategic, although the bank is likely to extend credit to other local mortgage lenders.
It coincides with a recovery in Australia’s securitisation market. So far this year about $26 billion of RMBS have been issued in the local market, which is more than twice the amount sold in 2012. According to Australian Prudential Regulation Authority statistics, AMP has $7.7 billion of mortgage assets, a 1 per cent share of the $1.2 trillion mortgage market, compared to the big four banks’ 85 per cent market share.
Bank of Tokyo-Mitsubishi is one of the largest lenders in Japan with an equivalent of $1.9 trillion of assets and a deposit base of $1.34 trillion, more than the combined $1.29 trillion deposit base of Australia’s four largest banks.
Australia’s non-major banks rely on the issuance of RMBS to compete with their larger rivals in the wholesale markets.owever, in order to issue residential mortgage backed bonds, these lenders require short-term warehouse loans to create the mortgages to back the bonds.
The major banks often provide short-term loans to non-major banks and non-bank lenders with the current going rate at around 100 to 115 basis points over the bank bill rate.