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A Northern Rock in Australia?

A Northern Rock in Australia?

Staff Reporter 1 minute read

As funding costs continue to rise, some are questioning whether Australian lenders are vulnerable to the same fate as UK bank Northern Rock — which has shed almost 80 per cent of its market value in the wake of the sub-prime mortgage crisis.

The failed lender, which relied heavily on securitisation for its funding, has watched its worth slide from £2.70 billion (A$6.17 billion) to a mere £556 million (A$1.28 billion).

"Yes, an Australian lender could find itself in the same predicament," leading analyst Craig Williams of Citigroup Global Markets told Mortgage Business.

The non-bank sector is particularly vulnerable. In the most extreme case where the market for asset-backed securities dries up, lenders that have used their warehouse facilities could find themselves unable to grow their books, Williams said.

"If a transaction can be arranged, the cost of that funding has risen significantly, placing pressure on margins. The lender is then faced with putting prices up for their customers, rendering the lender uncompetitive with those lenders that have more diversified, more cost-competitive finding sources, such as the major banks," said Williams.

ING head of treasury Glenn Baker said the health of Australian lenders depended largely on their funding base and whether they had a major concentration of RMBS.

"Lenders with diversified funding would be much better off than non-bank lenders, who will be feeling the pinch more than the banks," Baker said.

 

As funding costs continue to rise, some are questioning whether Australian lenders are vulnerable to the same fate as UK bank Northern Rock — which has shed almost 80 per cent of its market value in the wake of the sub-prime mortgage crisis.

The failed lender, which relied heavily on securitisation for its funding, has watched its worth slide from £2.70 billion (A$6.17 billion) to a mere £556 million (A$1.28 billion).

"Yes, an Australian lender could find itself in the same predicament," leading analyst Craig Williams of Citigroup Global Markets told Mortgage Business.

The non-bank sector is particularly vulnerable. In the most extreme case where the market for asset-backed securities dries up, lenders that have used their warehouse facilities could find themselves unable to grow their books, Williams said.

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"If a transaction can be arranged, the cost of that funding has risen significantly, placing pressure on margins. The lender is then faced with putting prices up for their customers, rendering the lender uncompetitive with those lenders that have more diversified, more cost-competitive finding sources, such as the major banks," said Williams.

ING head of treasury Glenn Baker said the health of Australian lenders depended largely on their funding base and whether they had a major concentration of RMBS.

"Lenders with diversified funding would be much better off than non-bank lenders, who will be feeling the pinch more than the banks," Baker said.

 

A Northern Rock in Australia?
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