Chart of the Month - January 2025

Back in 2007, Pirates of the Caribbean: At World’s End topped the global box office and Asset-Backed Securities (ABS) issuance was riding high. But as the Global Financial Crisis hit full stride in 2008, the champagne went flat for ABS. ABS tumbled everywhere, including in Australia.    

ABS issued by banks (Authorised Deposit-taking Institutions or ADIs) have never really recovered. However, ABS issued by non-banks (non-ADIs) started to recover from 2015.

By the end of 2020, ABS issued by non-banks had surpassed that of banks, and by the end of 2023, it had recovered to its pre-GFC levels.

As of September 2024, the growth of non-bank ABS has pushed total ABS assets to levels not seen since 2009 (see chart below). Banks are stepping back and non-traditional lenders are stepping up!

RMBS still dominates

RMBS (Residential-Mortgage-Backed Securities) still dominate ABS in Australia with a share of over 70% of securitisers’ assets. However, its share has fallen rapidly in the last four years as ABS backed by other loan types have increased their share (see chart below).

Growth of auto and equipment ABS issued by non-banks

ABS backed by auto and equipment loans have led the recent growth in the share of ABS backed by other loan types (see chart below). This is despite the total value of auto and equipment loans slowing since 2024.

And it has been non-bank issues driving this growth. In 2021, several large banks sold off their auto and equipment loan books to non-banks who then began to issue ABS against these loans (see chart below).

Australian auto and equipment ABS are dominated by consumer loans for used or ex-demo cars.

Non-banks also increasing their share of RMBS

However, this growth in ABS issued by non-banks is not just happening with auto and equipment loans. It is also happening in RMBS, reflecting the significant structural shift of debt servicing from banks to non-banks since around 2016 (see chart below).

Foreign interest

Foreigners are the largest owners of Australian ABS with Australia’s higher interest rates and stable economy providing a strong incentive (see chart below).

Final thoughts

Australian ABS is growing in strength and it is the non-banks leading the way as banks continue to step away from their traditional loan businesses. There are strong parallels with the growth of private credit in Australia and with foreign interest in private credit.