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Feedback required on business securitisation fund

by Annie Kane5 minute read

Stakeholders are being urged to submit their thoughts regarding the effectiveness of the Australian Business Securitisation Fund and its support to SMEs.

A consultation has launched into the effectiveness of the $2 billion Australian Business Securitisation Fund (ABSF), which is administered by the Australian Office of Financial Management (AOFM).

The fund was first established in 2019 to help improve the take up of business finance - namely by reducing the cost of lending to SME lenders via investments in securitisation warehouse facilities and term securitisations.

As the Australian Business Securitisation Fund Act 2019 requires a review to be undertaken two years and five years after commencement of the act to “assess its effectiveness in meeting its objectives”, the government has now opened a consultation on the ABSF to help inform its review.

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The review will specifically focus on:

  • The effectiveness of the ABSF in increasing availability and reducing cost of credit provided to SMEs;
  • The impact of the ABSF on the development of the securitisation market for SME lenders; 
  • Whether the AOFM, as administrator of the ABSF, has adopted an appropriate set of ABSF investment principles to codify its implementation of the investment mandate, and whether it is abiding by these principles; and 
  • Whether the settings of the ABSF, including investment mandate and credits to the account, remain appropriate.

While the government has noted that isolating the impact of the ABSF on availability and cost of SME finance may be “challenging” at this early stage of the ABSF’s implementation, particularly given the existence of other forces in the lending market, it is now calling on stakeholders to provide their thoughts on the following matters:

  • How has the ability of lenders to provide SME finance improved and to what extent can this be attributed to the ABSF? 
  • To what degree has the ABSF influenced SME lending rates? 
  • What effect has the ABSF had on the viability of securitisation funding for SME lenders in terms of cost and assets that can be funded in this way?
  • Has the ABSF had the effect of crowding in third-party investors to the SME securitisation market? 
  • What contribution will standardised data reporting make to the development of the SME securitisation market? 
  • Are the investment principles and process established for the ABSF by the AOFM appropriate to meet the objectives of the ABSF Act and have these been abided by in ABSF investments to date? 
  • Do the ABSF’s legislative settings and mandate remain appropriate for the ABSF to achieve its objectives? 

Interested parties are invited to respond by 4 February 2022. 

Treasury will then provide its final report to the government by 25 March 2022. 

While launching the consultation on Tuesday (21 December), Treasurer Josh Frydenberg commented that the ABSF is “designed to unlock a competitive funding source for smaller lenders, allowing them to compete with the major banks and on‑lend to small and medium‑sized businesses on more competitive terms”. 

“With better access to more competitive finance, small and medium‑sized businesses are able to grow, fulfil their potential and continue to underpin Australia’s economic recovery from COVID‑19,” he said.

What the ABSF has invested in so far

In its first round, the ABSF provided $250 million of funding to Judo Bank but many of its activities were placed on hold in 2020 when the coronavirus pandemic hit and related support was rolled out that focused on supporting SME lending (for example, the Structured Finance Support Fund, the SME Guarantee Scheme, the SME Recovery Loan Scheme and the Reserve Bank’s Term Funding Facility).

It has more recently allocated in-principle approval for funding to both OnDeck and Shift (previously called GetCapital) and is reportedly "in discussions with proponents whose transactions are at differing stages of development and assessment".

The government is expected to make available to the ABSF instalments of $500 million on 1 July 2022 and 1 July 2023. 

[Related: ABSF announces its first $250m investment]

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Annie Kane

Annie Kane

AUTHOR

Annie Kane is the editor of The Adviser and Mortgage Business.

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