RMBS Performance Watch: Australia - Market Overview

RMBS Performance Watch: Australia - Market OverviewAs of Dec. 31, 2020

Australian Macroeconomic EnvironmentVaccination rollouts boost recovery momentum

S&P Global Ratings Economic Outlook: Australia

2021f 2022f Outlook Effect on credit quality

Real GDP forecast (% year over year)

4.0 3.2 Recovery momentum continues, with GDP growth forecast to reach 4.0% in 2021.

Improving. Economic growth is recovering as businesses reopen. This will help ease the transition of stimulus measures and mortgage-relief periods.

Unemployment rate (year average; %)

6.5 6.0 Job growth recovery continues apace with the reopening of the economy. We do not expect a return to pre-COVID-19 unemployment levels until 2023.

Negative but improving. Unemployment rate is declining as jobs growth continues. Leisure, travel and hospitality sectors continue to be impacted by border closures.

CPI (%) 1.4 1.6 Wage growth remains well below long-term averages. Spare capacity in the labor market will keep wage growth subdued for some time.

Negative. Weak wage growth is likely to persist for some time. This will be offset by historically low interest rates.

Policy rate, end of year (%)

0.10 0.10 The Reserve Bank of Australia has said it will not increase the cash rate until unemployment improves.

Positive. Policy rate cuts tend to be effective in Australia because they feed through to mortgages, which are mostly variable rate.

3

f--Forecast. CPI--Consumer price index. Source: S&P Global Ratings.

Mobility Mostly Back To Pre-Pandemic Levels

4

Source: Apple Mobility Data.

Driving Mobility Pre- And Post-Pandemic

0

20

40

60

80

100

120

140

160

Sydney driving Melbourne driving Brisbane driving

Pre-COVID

Post-COVID

Unemployment Rate Is Improving But There Is Still Ground To Recover

5

Source: Australian Bureau of Statistics.

Nationwide Unemployment Rates

0% 1% 2% 3% 4% 5% 6% 7% 8%

Australia

NSW

VIC

Qld

WA

SA

TAS

NT

Jan. 2021 Jan. 2020

$-

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

34%

35%

36%

37%

38%

39%

40%

41%

Mar2019

Apr2019

May2019

Jun2019

Jul2019

Aug2019

Sep2019

Oct2019

Nov2019

Dec2019

Jan2020

Feb2020

Mar2020

Apr2020

May2020

Jun2020

Jul2020

Aug2020

Sep2020

Mil.

Lending > 80% LTV as a % of new lending Housing finance commitments first home owner (right scale)

Leverage Builds As More First-Home Owners Enter The Market

6

LTV—Loan-to-value(ratio). Mil.--Million. Source: Australian Bureau of Statistics, Australian Prudential Regulation Authority

Uptick In First-Home Owner (FHO) Lending Is Increasing The Share Of High LTV Lending

High LTV lending dropped off after the onset of COVID-19 when uncertainty was high but has increased since mid-2020.

Growth in FHO Lending is increasing. FHOs often have smaller deposits, translating to higher LTV loans.

Australian RMBS Outlook

7

– Economic momentum continues as vaccinations commence and local economies mostly reopen.

– Short, sharp lockdowns continue to affect the tourism and travel sectors but do not appear to be having a material effect on debt serviceability. This reflects the higher exposure to PAYG full-time, salaried employees across most RMBS transactions.

– Mortgage-deferral levels continue to fall but are likely to plateau in the coming months as the remaining borrowers under mortgage-deferral arrangements are more likely to be directly affected by COVID-19 and facing longer term debt-serviceability pressures.

– Arrears are starting to rise as fiscal stimulus measures taper and some borrowers transition from COVID-19 mortgage-deferral arrangements to formal arrears hardship programs.

– Arrears are likely to surface more meaningfully after mortgage-deferral periods formally expire in March 2021.

– Improving property prices will help to contain any losses in the event of borrower default as borrowers’ equity positions in their mortgages are enhanced by rising property values.

COVID-19 Update

Mortgage Deferrals Plateau As Most Borrowers Exit Arrangements

9

Data are as of Dec. 31, 2020. % refers to average % at a trust level. RMBS--Residential mortgage-backed securities. Source: S&P Global Ratings.

Prime RMBS Average level of COVID-19 arrangements (%)

Oct. 2020 Nov. 2020 Dec. 2020

Major banks 3.18 2.10 1.96

Nonbank originators 4.13 3.85 3.82

Regional banks 4.05 2.89 3.17

Other banks 3.73 2.82 1.55

Nonbank financial institutions 3.12 2.78 2.73

Nonconforming RMBS

Nonbank originators 4.95 5.00 3.83

– Mortgage-deferral levels continue to decline as the economy reopens.

– Mortgage-deferral levels will plateau as most borrowers who could resume their repayments have already exited such arrangements.

– Borrowers who are still under mortgage-deferral arrangements are likely to be facing longer term more permanent debt-serviceability pressures.

– Lenders will adopt different approaches to transitioning loans off mortgage-deferral arrangements.

– We expect around 10%-15% of mortgage deferrals (based on May-June peaks) to transition to formal hardship arrangements, based on feedback from lenders.

– Borrowers who have already exited mortgage-deferral arrangements have generally resumed repaying their mortgages.

Borrowers Still Under Deferral Arrangements Have Higher LTV Ratios

10

LTV--Loan-to-value (ratio). RMBS--Residential mortgage-backed securities. Source: S&P Global Ratings. Data as of Dec. 31, 2020.

– Loans under mortgage-deferral arrangements are skewed toward more highly leveraged borrowers than the broader RMBS universe.

– More highly leveraged borrowers whose income has been affected by COVID-19 are likely to be under greater debt-serviceability pressure.

– Highly leveraged loans are more likely to be less seasoned and lacking repayment buffers, given their limited repayment history.

– The types of restructuring arrangements offered to borrowers transitioning off mortgage-deferral arrangements will be lender specific. This will influence arrears reporting practices.

– Victoria has the highest level of mortgage-deferral arrangements in the RMBS sector as of December 2020.

Prime LTV Distribution

Non-Conforming LTV Distribution

0%

10%

20%

30%

40%

50%

<=60% 60%> and<=70%

70%> and<=80%

80%> and<=90%

90%> and<=100%

>100%

Prime total RMBS Prime COVID hardship

0%

10%

20%

30%

40%

50%

<=60% 60%> and<=70%

70%> and<=80%

80%> and<=90%

90%> and<=100%

>100%

Non-conforming total RMBS Non-conforming COVID hardship

Victoria Has The Highest Level Of Mortgage-Deferral Arrangements

11

Data as of Dec. 31, 2020. RMBS--Residential mortgage-backed securities. Source: S&P Global Ratings.

COVID-19 hardship

Total RMBS sector

WesternAustralia

NorthernTerritory

SouthAustralia

Queensland

New SouthWales

Victoria

2%1%

32%32%

25%33%

6%4%

1%1%

10%8%

23%20%

AustralianCapital

Territory

2%1%

Tasmania

COVID-19 Exposure By State

Investor Arrears Are Rising Faster In Inner City Areas

12

Data as of Dec. 31, 2020. RMBS--Residential mortgage-backed securities. Source: S&P Global Ratings. Data set based on investor loans underlying Australian RMBS transactions. Geographical areas are based on the ABS SA4 Classification.

Largest Rises In Investor Arrears Were In Areas Close To CBDs– Debt-serviceability pressures were more

acute for investors with properties in inner-city areas.

– Since the pandemic, inner-city areas have experienced some of the greatest increases in arrears, albeit off low levels.

– Inner-city locations in Melbourne and Sydney have suffered some of the greatest declines in rental income in the past 12 months as renters moved out of the city and international borders closed.

– Inner-city areas in Melbourne and Sydney formerly had some of the lowest arrears in the RMBS sector.

– Refinancing conditions are likely to be more difficult for investors with properties in inner-city locations, adding to debt-serviceability pressures.

– Most RMBS transactions are geographically well diversified so the exposure to these locations in most transactions is insignificant.

Region State30+ days arrears

Dec. 202030+ days arrears

Dec. 2019

Sydney - Eastern Suburbs NSW 2.34% 0.48%

Brisbane Inner City QLD 2.22% 0.59%

Sydney - Parramatta NSW 2.15% 0.80%

Melbourne - Inner VIC 1.87% 0.73%

Sydney - Ryde NSW 1.34% 0.21%

Sydney - South West NSW 3.17% 2.08%

Melbourne - Inner South VIC 1.79% 0.71%

Sydney - Inner West NSW 1.52% 0.50%

Australian RMBS PerformanceArrears set to increase as stimulus measures taper and mortgage deferrals end

0%

2%

4%

6%

8%

10%

12%

0.00%

0.20%

0.40%

0.60%

0.80%

1.00%

1.20%

1.40%

1.60%

1.80%

31-60 days 61-90 days 90+ days Standard variable rates (right scale)

Prime Arrears Are Edging Up But Low Interest Rates Are Helping Most Borrowers

14

Source: Reserve Bank of Australia. S&P Global Ratings.

30+ days arrears Dec. 2020: 1.37%30+ days arrears Dec. 2019: 1.28%

Earlier arrears categories are sensitive to interest-rate movements

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

0%

5%

10%

15%

20%

Bil. A

$.

31-60 days 61-90 days 90+ days Total current loan balance (right scale)

Non-Conforming Arrears Well Below Financial Crisis Highs

15

Bil.--Billion. Source: S&P Global Ratings.

Nonconforming arrears peaked at 17.09% after the 2008 financial crisis

Nonconforming loan balances have nearly quadrupled in the past five years

Prime Prepayment Rates Are Stabilizing

16

Data as of Dec. 31, 2020. Source: S&P Global Ratings.

– Prime prepayment rates dipped in the December quarter. This is a seasonal trend, with prepayment rates typically slowing in the fourth quarter as borrowers increase consumer spending in the lead up to Christmas.

– We expect prime prepayment rates to stabilize around long-term averages in 2021 because borrowers who were looking to refinance have probably already done so.

– Nonconforming prepayment rates increased to 24.37% in December from 21.89% in September.

– This could reflect the increasing competition in the nonconforming sector, driving record new issuance volumes and bolstering refinance activity.

– A resurgence in property prices could further boost refinance activity, increasing prepayment rates. Rising arrears will offset this to some degree.

– Borrowers who might be under financial pressure post-COVID-19 might capitalize on increasing property prices by selling their homes and monetizing their equity build up.

0%

5%

10%

15%

20%

25%

30%

35%

40%

Prime prepayment rate (Inc. Non-Capital Market Issuance)

Nonconforming prepayment rate

10-year long-term average prime prepayment rate

Prime prepayment rate (Exc. Non-Capital Market Issuance)

Offshore Observations: International Arrears

17

RMBS--Residential mortgage-backed securities. Data as of Dec 31, 2020. Source: S&P Global Ratings.

International Comparisons – 30+ Day Mortgage Arrears

0%

1%

2%

3%

4%

5%

6%

7%

30+ Day mortgage arrears - Prime RMBS

UK Italy Spain Netherlands Australia

Offshore Observations: International Prepayment Rates

18

RMBS--Residential mortgage-backed securities. Data as of Dec 31, 2020. Source: S&P Global Ratings.

International Comparisons – Prime Prepayment Rates

0%

5%

10%

15%

20%

25%

30%

Prime RMBS prepayment rates

U.K Spain Italy Netherlands Australia

Cumulative Gross Loss By Vintage Of Origination - Prime RMBS

Cumulative Gross Loss By Vintage Of Origination - Nonconforming RMBS

COVID-19’s Effect On Losses Will Be Tempered By Rising Property Prices

19

RMBS--Residential mortgage-backed securities. Source: S&P Global Ratings. RMBS--Residential mortgage-backed securities. Source: S&P Global Ratings.

Property prices are rebounding. Increasing property prices will temper losses in the event of borrower default. The lower loss profile of recent vintages reflects the modest LTV ratio profile of most RMBS transactions and strong equity buildup in many loans.

0.00%

0.01%

0.02%

0.03%

0.04%

0.05%

0.06%

0.07%

2011 2012 2013 2014 2015 2016 2017 2018 2019 20200.00%

0.10%

0.20%

0.30%

0.40%

0.50%

0.60%

0.70%

0.80%

0.90%

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Arrears Performance NationwideCOVID-19’s effect on debt serviceability is starting to emerge

Debt-Serviceability Pressures Are Emerging At The Margins

21

Map boundaries are based on the ABS SA4 geographical classifications. Some areas on the map have been merged graphically. Source: S&P Global Ratings.

The tapering of fiscal stimulus measures and expiration of mortgage-deferral

periods for many borrowers will lead to an increase in arrears, but at the margin.

Low interest rates, increasing property prices, and strong refinancing conditions

for borrowers of a good credit quality bode well for the continued strong performance

of the Australian RMBS sector.

We expect debt-serviceability pressures to meaningfully surface after March 2021, when mortgage-deferral periods formally

expire.

Australia

0%-0.74% 0.75%-1.24% 1.25%-1.74% 1.75%-2.24% +2.25%

Pre- And Post-Pandemic Population Shifts And Their Effect On Debt Serviceability

22

Source: Australian Bureau of Statistics.

Annual Migration Trends: June 2019 – June 2020– Prepandemic population shifts, including

greater interstate migration to Queensland, increased after the pandemic.

– Housing affordability traditionally has been a key driver of net interstate migration into states like Queensland from New South Wales and Victoria.

– A shift to more remote working and a desire for more floor space to accommodate this will strengthen net interstate migration to areas with more affordable housing.

– Increased population inflows will translate to increased demand for property.

– This will influence property prices and have positive flow-on effects on debt serviceability as increasing property values improve refinancing prospects.

– Property price growth will differ for states due to variations in population dynamics.

(30,000)

(20,000)

(10,000)

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

NSW Vic. Qld SA WA Tas. NT ACT

Net interstate migration Net overseas migration

Mortgage Belt And Inner-City Areas Home To Largest Increases In Arrears

23

Data as of Dec. 31, 2020. RMBS--Residential mortgage-backed securities. Source: S&P Global Ratings. Data set based on all loans underlying Australian RMBS transactions. Geographical areas are based on the ABS SA4 Classification.

Highest year-on-year increases in arrears across the Australian RMBS sector.

– The largest year-on-year increases in arrears were in some inner-city and mortgage belt areas.

– Inner-city areas in Melbourne and Sydney traditionally have had some of the lowest arrear across the Australian RMBS sector.

– Greater arrears increases in these areas, albeit off low levels, partly reflects borrowers’ greater debt-to-income levels, particularly in Sydney, where property prices are expensive.

– Higher debt-to-income ratios increase borrowers’ sensitivity to decreased incomes.

– Rental income in inner-city areas in Sydney and Melbourne has been hurt by COVID-19, affecting investor income. This has also contributed to higher arrears in these areas.

– This could change as housing affordability pressures rise, workers return to the office, and international migration resumes.

Regional name State30+ Arrears

Dec. 202030+ Arrears

Dec. 2019

Sydney - South West NSW 3.40% 2.08%

Sydney - Parramatta NSW 1.99% 0.80%

Sydney - Eastern Suburbs NSW 1.50% 0.48%

Brisbane Inner City QLD 1.55% 0.59%

Sydney - Inner West NSW 1.33% 0.50%

Sydney - Ryde NSW 0.97% 0.21%

Melbourne - Inner South VIC 1.45% 0.71%

Melbourne - Inner VIC 1.45% 0.73%

Sydney - Northern Beaches NSW 1.15% 0.49%

Sydney - Inner South West NSW 2.26% 1.61%

Sydney - City and Inner South NSW 1.21% 0.58%

New South Wales: Unemployment Remains Higher Than Pre-Pandemic Low

24

NSW’s service-oriented economy has been hit harder by international border closures than other states.

This has contributed to a larger rise in unemployment pre- and post-pandemic. Debt-serviceability pressures are typically

higher for Sydney borrowers, particularly in mortgage belt areas, given Sydney’s expensive property prices relative to average household income. This increases households’ sensitivity to

pressure on household income. Current 30+Days Arrears

1.49%

Peak 30+Days Arrears

2.69%

UnemploymentRate

6.00%

Exposure Across RMBS

32%0%-0.74% 0.75%-1.24% 1.25%-1.74% 1.75%-2.24% +2.25%

105

128109

110

103

106

101

113

212

104

108

119125

115102

124

114

123

107

111

116

127

121122

Source: Australian Bureau of Statistics. S&P Global Ratings. Note: Numbers on the chart are the geographic SA4 area codes as defined by the Australian Bureau of Statistics. The full list of SA4 areas can be found on slides 31-32.

Victoria: Lockdown Hangover Reflected In Higher Mortgage-Deferral Levels

25

Victoria’s longer lockdown led to a higher proportion of borrowers still under mortgage-

deferral arrangements and this is likely to translate to higher arrears in the months

ahead. Refinancing prospects might also be more difficult for some borrowers in Victoria.

More exposed borrowers include investors with properties in inner-city areas, where

rental income has fallen, and self-employed borrowers, who are more highly represented in nonconforming transactions. Improving house prices, low interest rates, and the continued

reopening of the economy should help to keep arrears low for most borrowers.

Current 30+Days Arrears

1.50%


1.86%

UnemploymentRate

6.3%


25%

203

215

214

201

202216

204

205

213

210 209

211

212

214

Source: Australian Bureau of Statistics. S&P Global Ratings. Note: Numbers on the chart are the geographic SA4 area codes as defined by the Australian Bureau of Statistics. The full list of SA4 areas can be found on slides 31-32

0%-0.74% 0.75%-1.24% 1.25%-1.74% 1.75%-2.24% +2.25%

Queensland: Property Price Growth Heats Up, Improving Debt Serviceability

26

Queensland has become the nation's most desirable location

since the pandemic. This is reflected in its stronger property

price growth and higher net interstate migration.

Improving property prices help build borrowers’ equity in their home

loans. This helps with refinancing prospects, a common way to self-

manage out of arrears.

While areas more dependent on tourism will continue to face higher

unemployment while borders remain closed and uncertainty over future closures remain, the flow-on effect on arrears will be tempered

by the nature of job losses. Tourism sector employees are more likely to

be renters.


1.43%


2.17%

UnemploymentRate

7.0%


23%0%-0.74% 0.75%-1.24% 1.25%-1.74% 1.75%-2.24% +2.25%

312

306

318

308

319

307

315

313

316

310317

311309

Source: Australian Bureau of Statistics. S&P Global Ratings. Numbers on the chart are the geographic SA4 area codes as defined by the Australian Bureau of Statistics. The full list of SA4 areas can be found on slides 31-32

Western Australia: Arrears And Property Prices Are Turning A Corner

27

Strong demand for iron ore is underpinning Western Australia’s post-

pandemic recovery. This is helping property prices, which is good for arrears because it improves borrowers’ refinancing prospects. Arrears remain higher in WA overall due to

the presence of legacy loans from the mining boom era, many of which are in

advanced stages of arrears. These loans typically have high LTV ratios, reflecting the

significant market value declines in many parts of Western Australia since the mining

boom.

Current Peak 30+Days Arrears

2.46%


3.10%

UnemploymentRate

6.20%


10%0%-0.74% 0.75%-1.24% 1.25%-1.74% 1.75%-2.24% +2.25%

504

503

505

506

502

507

508

509

501


South Australia: Arrears Less Affected By COVID-19

28

South Australia’s success in containing the virus enabled its economy to remain open. This is likely to lead to lower increases in arrears flowing from COVID-19. On average,

arrears are typically higher in South Australia. This reflects its traditionally higher unemployment rate compared with more populous states with greater

employment diversity.


1.31%


1.81%

UnemploymentRate

7.10%


6%

0%-0.74% 0.75%-1.24% 1.25%-1.74% 1.75%-2.24% +2.25%

406

402

401

403

404

405

407


Tasmania: Arrears Are Falling

29

Tasmania’s unemployment rate was below several of its state counterparts in January 2021. Together with property price growth, this has helped to stabilize

arrears as mortgage-deferral periods expire. Exposure to Tasmania in most RMBS transactions is

insignificant, at less than 2%.


0.81%


2.02%

UnemploymentRate

5.90%


2.0%0%-0.74% 0.75%-1.24% 1.25%-1.74% 1.75%-2.24% +2.25%

604 602

603

601


The Territories: The Best And Worst Of Arrears Performance

30

Northern Territory has the most volatile arrears performance due to small exposures in portfolios. Darwin

still has a disproportionate share of COVID-19 hardship arrangements, reflecting the border closure’s effect on

the tourism sector.

Australian Capital Territory has the nation’s lowest arrears, at 0.93%, as of Dec. 31, 2020. This reflects its stronger employment profile and lower unemployment.


2.90%


3.50%

UnemploymentRate

6.2%


1.0%

0%-0.74% 0.75%-1.24% 1.25%-1.74% 1.75%-2.24% +2.25%

702

701


Geographic area map code Regional name State

30+ days arrears

levelDec. 2020

30+ days arrears

levelDec. 2019

Exposure across RMBS


30+ days arrears

levelDec. 2020

30+ days arrears

levelDec. 2019


101 Capital Region NSW 1.07% 1.40% 1.20% 124 Sydney - Outer West and Blue Mountains NSW 1.53% 1.15% 0.94%

102 Central Coast NSW 1.25% 1.45% 1.54% 125 Sydney - Parramatta NSW 1.99% 0.80% 2.17%

103 Central West NSW 1.33% 1.89% 0.48% 126 Sydney - Ryde NSW 0.97% 0.21% 0.54%

104 Coffs Harbour - Grafton NSW 0.86% 1.05% 0.36% 127 Sydney - South West NSW 3.40% 2.08% 0.90%

105 Far West and Orana NSW 1.68% 2.81% 0.18% 128 Sydney - Sutherland NSW 1.36% 1.13% 0.82%

106 Hunter Valley exc Newcastle NSW 0.80% 1.34% 1.43% 201 Ballarat VIC 1.25% 1.26% 0.66%

107 Illawarra NSW 1.11% 1.29% 1.75% 202 Bendigo VIC 1.44% 1.57% 0.33%

108 Mid North Coast NSW 1.31% 1.49% 0.45% 203 Geelong VIC 0.81% 1.14% 1.14%

109 Murray NSW 0.98% 1.25% 0.68% 204 Hume VIC 1.62% 2.79% 0.30%

110 New England and North West NSW 1.07% 2.21% 0.24% 205 Latrobe - Gippsland VIC 1.65% 1.86% 0.58%

111 Newcastle and Lake Macquarie NSW 0.96% 0.98% 1.64% 206 Melbourne - Inner VIC 1.45% 0.73% 4.40%

112 Richmond - Tweed NSW 1.65% 1.66% 1.05% 207 Melbourne - Inner East VIC 1.19% 0.92% 1.80%

113 Riverina NSW 1.11% 2.61% 0.11% 208 Melbourne - Inner South VIC 1.45% 0.71% 2.26%

114 Southern Highlands and Shoalhaven NSW 1.76% 1.25% 0.27% 209 Melbourne - North East VIC 1.59% 1.30% 2.60%

115 Sydney - Baulkham Hills and Hawkesbury NSW 1.63% 1.11% 1.93% 210 Melbourne - North West VIC 1.96% 1.38% 1.34%

116 Sydney - Blacktown NSW 1.68% 1.43% 2.43% 211 Melbourne - Outer East VIC 1.18% 1.10% 2.48%

117 Sydney - City and Inner South NSW 1.21% 0.58% 3.00% 212 Melbourne - South East VIC 1.61% 1.64% 2.58%

118 Sydney - Eastern Suburbs NSW 1.50% 0.48% 0.85% 213 Melbourne - West VIC 2.01% 1.62% 2.72%

119 Sydney - Inner South West NSW 2.26% 1.61% 3.32% 214 Mornington Peninsula VIC 1.67% 1.70% 1.32%

120 Sydney - Inner West NSW 1.33% 0.50% 1.27% 215 North West VIC 1.24% 1.18% 0.12%

121 Sydney - North Sydney and Hornsby NSW 1.12% 0.65% 2.24% 216 Shepparton VIC 1.20% 1.91% 0.12%

122 Sydney - Northern Beaches NSW 1.15% 0.49% 1.48% 217 Warrnambool and South West VIC 0.93% 1.33% 0.21%

123 Sydney - Outer South West NSW 1.85% 1.83% 1.05% 301 Brisbane - East QLD 1.18% 1.60% 1.48%

SA4 Listing Arrears And Exposure

31


30+ days arrears

levelDec. 2020

30+ days arrears

levelDec. 2019



30+ days arrears

levelDec. 2020

30+ days arrears

levelDec. 2019


302 Brisbane - North QLD 0.96% 0.81% 2.05% 404 Adelaide - West SA 1.30% 1.22% 0.78%

303 Brisbane - South QLD 1.12% 1.19% 2.82% 405 Barossa - Yorke - Mid North SA 2.22% 3.56% 0.15%

304 Brisbane - West QLD 0.80% 0.76% 1.28% 406 South Australia - Outback SA 2.26% 1.93% 0.13%

305 Brisbane Inner City QLD 1.55% 0.59% 0.96% 407 South Australia - South East SA 1.57% 2.49% 0.30%

306 Cairns QLD 1.94% 1.99% 0.85% 501 Bunbury WA 2.06% 2.60% 0.43%

307 Darling Downs - Maranoa QLD 1.34% 2.05% 0.96% 502 Mandurah WA 2.82% 3.56% 0.30%

308 Fitzroy QLD 2.70% 3.42% 0.92% 503 Perth - Inner WA 1.41% 1.16% 1.03%

309 Gold Coast QLD 1.38% 1.37% 3.23% 504 Perth - North East WA 2.65% 2.91% 1.31%

310 Ipswich QLD 1.63% 2.24% 1.21% 505 Perth - North West WA 2.17% 3.03% 2.01%

311 Logan - Beaudesert QLD 1.59% 2.72% 0.56% 506 Perth - South East WA 2.96% 2.53% 2.06%

312 Mackay QLD 2.43% 3.33% 0.75% 507 Perth - South West WA 2.33% 2.76% 1.51%

313 Moreton Bay - North QLD 1.47% 2.00% 1.27% 508 Western Australia - Outback WA 3.52% 4.31% 0.39%

314 Moreton Bay - South QLD 0.96% 1.00% 0.65% 509 Western Australia - Wheat Belt WA 3.65% 3.66% 0.17%

315 Queensland - Outback QLD 2.30% 4.99% 0.15% 601 Hobart TAS 0.64% 1.05% 0.81%

316 Sunshine Coast QLD 1.33% 1.55% 1.59% 602 Launceston and North East TAS 1.25% 1.12% 0.34%

317 Toowoomba QLD 0.00% 3.39% 0.01% 603 South East TAS 1.83% 1.04% 0.03%

318 Townsville QLD 1.82% 2.62% 1.03% 604 West and North West TAS 0.62% 1.43% 0.22%

319 Wide Bay QLD 1.87% 2.38% 0.58% 701 Darwin NT 3.08% 2.98% 0.64%

401 Adelaide - Central and Hills SA 1.02% 1.13% 1.44% 702 Northern Territory - Outback NT 1.85% 0.98% 0.08%

402 Adelaide - North SA 1.53% 1.67% 1.22% 801 Australian Capital Territory ACT 0.93% 0.88% 1.73%

403 Adelaide - South SA 1.16% 1.28% 1.32% 901 Other Territories WA 0.00% 0.00% 0.00%

SA4 Listing Arrears And Exposure

32

The 10 Worst-Performing Postcodes

State Suburb Postcode Loans in arrears

VIC Altona east 3025 6.14%

WA Forrestfield 6058 5.58%

WA Byford 6122 4.90%

NSW Catherine Field 2557 4.79%

WA Binduli 6430 4.70%

NT Darwin 800 4.67%

NSW Guildford 2161 4.55%

WA Cloverdale 6105 4.49%

NSW Bankstown 2200 4.46%

WA Maddington 6109 4.46%

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Source: S&P Global Ratings. Data as of Dec. 31, 2020. For a full list of suburbs/localities attached to these postcodes, please refer to the Australia Post website.

New Zealand

S&P Global Ratings Economic Outlook

2021f 2022f Outlook Effect on credit quality

Real GDPgrowth (% year over year)

4.3 2.9 The country has outperformed nearly all others in containing COVID-19.

Improving. New Zealand’s good progress on the health front has laid the groundwork for a solid economic recovery.

Unemploymentrate (year average; %)

5.8 5.5 A wage-subsidy scheme has run its course but there is not much evidence to date of labor market scarring, with unemployment falling to less than 5% as of the end of 2020, against expectations of a further increase.

Improving. A recovery in economic activity has been reflected in stronger than expected labor market recovery.

CPI (%) 1.5 1.5 Wage growth is likely to remain subdued in the wake of COVID-19 but labor shortages in some sectors could shift this.

Negative but improving. Althoughwage growth has remained subdued, it could rise, given increased demand for labor, particularly in the retail and construction sectors.

Policy rates, end of year (%)

0.00 0.50 The official cash rate is set to remain low for 2021 but is forecast to increase from 2022.

Positive. Lower rates will support debt serviceability for borrowers with variable-rate mortgages.

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f--Forecast. CPI--Consumer price index. Source: S&P Global Ratings.

House Prices Surge

– New Zealand’s early success in containing the spread of COVID-19 has enabled its economy to remain largely open, despite, international border closures. This has laid the framework for a solid economic recovery.

– Wage subsidy schemes have expired, but unemployment is back to pre-COVID-19 level as labor demand has rebounded, particularly in sectors with labor shortages, such as construction.

– Housing prices have surged, with property price growth close to 20% in 2020. Growth has been underpinned by low interest rates, returning expatriates, supply shortages, and a winding back of LTV ratio restrictions.

– This increases the risk of a property price correction, particularly given the high levels of household debt in New Zealand. To address these risks, the Reserve Bank of New Zealand is reinstating LTV ratio lending limits in March 2021.

– S&P Global Ratings raised its foreign-currency sovereign ratings to 'AA+/A-1+' from 'AA/A-1+' and its local currency sovereign ratings to 'AAA/A-1+' from 'AA+/A-1+’ on New Zealand in February 2021. The outlook is stable (see “New Zealand Ratings Raised To 'AA+' FC And 'AAA' LC As Pandemic Risks Moderate; Outlook Stable,” Feb. 2021).

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RMBS Sector Performance Remains Stable

– The credit quality of the New Zealand RMBS sector is strong, as evidenced by:

– Weighted-average LTV ratio of 62%.

– Average loan size of NZ$209,626.

– Weighted-average seasoning of 43 months.

– Low levels of arrears in most portfolios.

– All losses to date have been fully covered by lenders’ mortgage insurance.

– Several pools are now “small pools,” which have greater borrower concentration risk.

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RMBS--Residential mortgage-backed securities. LTV--Loan to value ratio.

CLICK HERE

Asia-PacificStructured Finance

Surveillance

How To Access RMBS Performance Watch

RMBS Performance Watch including arrears, prepayment, and pool statistics data can be accessed using the link below:

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https://www.spglobal.com/ratings/en/research-insights/topics/asia-pacific-structured-finance-surveillance

http://www.sfsurveillance.com.au/

RMBS Analytical Contacts

Kate Thomson

Analytical Manager | [email protected]

Narelle Coneybeare

Sector Lead | [email protected]

Erin Kitson

Sector Specialist Research | [email protected]

Elizabeth Steenson

Lead Analyst | [email protected]

Alisha Treacy

Lead Analyst | [email protected]

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mailto:[email protected]





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RMBS Performance Watch: Australia - Market Overview