The evolution of Australia's non-bank market
Australia's non-bank lending sector has transformed significantly since the pre-global financial crisis era, evolving into a diverse, sophisticated, and systemically important part of the financial ecosystem. Securitisation has played a pivotal role in this journey, providing the capital needed to support non-bank lenders to expand credit access to Australian consumers and businesses.
“Today, more than 100 non-bank lenders actively participate in the securitisation market, ranging from large, established institutions with assets under management (AUM) exceeding A$20 billion to niche and emerging players.”
KangaNews in partnership with RBC Capital Markets recently conducted a survey of Australian and New Zealand non bank lenders, the results shine a light on the current state of the non-bank sector, revealing its diversity, funding strategies, and growth outlook.
A shift toward diversification
The survey highlights a notable shift beyond the traditional reliance on residential mortgage-backed securities (RMBS). Larger non-bank lenders, in particular, tend to have diversified portfolios that span both mortgage and non-mortgage assets. Even within mortgage portfolios, there is an increasing emphasis on prime loans, which now constitute nearly half of the average non-bank mortgage book, a shift from the dominance of its non-conforming origins.
Growth in non-mortgage lending
Non-mortgage lending is also gaining traction, with the auto sector dominating this space. Auto loans and novated leases account for more than half of non-mortgage loan books on average. However, lenders active in this segment typically maintain diverse portfolios, with only a small proportion highly concentrated in auto lending. Reverse mortgages remain a highly specialised niche, offered by only a few experienced lenders.
Funding dynamics and investor demand
Public securitisation continues to be the dominant funding source for non-bank lenders, supported by highly competitive and attractive pricing across senior and mezzanine notes. Private placements are the second-most common funding option, with some lenders exploring forward-flow agreements and whole-loan sales. Despite the availability of foreign-currency funding, the majority of issuers prefer domestic currency issuance due to favourable market conditions.
Investor demand remains robust, with non-bank issuers maintaining broad distribution networks. Senior notes are typically sold to more than 11 investors, and mezzanine tranches also attract diverse participation. Offshore markets, particularly the UK, Japan, and Europe, are key areas of focus for investor relations, though domestic investors continue to account for the majority of placements.
Positive growth outlook
The outlook for the non-bank sector is optimistic. Survey respondents anticipate rapid to moderate growth in mortgage lending, particularly in the prime and niche segments, such as nonresident and self-managed superannuation fund (SMSF) loans. The auto lending sector is also expected to grow, albeit at a more moderate pace due to intense competition and market maturity.
The survey results show that Australia’s non-bank sector is in a strong position, buoyed by favourable funding conditions, robust investor demand, and a positive economic backdrop. While competition remains a challenge, the sector's diversification and adaptability ensure its continued relevance and growth. As non-bank lenders expand their portfolios and explore innovative funding strategies, they are well-equipped to navigate the evolving financial landscape and meet the diverse needs of Australian consumers and businesses.
Read the full report here
