Australian structured finance new issuance is likely to remain restrained in 2017, according to a recent report by S&P Global Ratings. We expect new issuance of residential mortgage-backed securities (RMBS) in particular to remain subdued. Pricing sensitivity and regulatory requirements will continue to affect new issuance volumes, especially for bank originators, according to the report, titled “Australian Securitization Volumes Likely To Be Restrained And Mortgage Delinquencies To Rise In 2017.” However, we expect issuance from nonbank originators to continue to grow as repeat issuers adapt structures to attract offshore investors. The underlying collateral quality of asset classes remains solid, as evidenced by the low levels of arrears and losses for most of the transactions that we rate. We expect mortgage delinquencies in RMBS portfolios to rise in 2017 as lower wage growth and underemployment have an effect on debt serviceability for certain borrowers. However, we expect home loan arrears to remain low overall. The extent to which broader economic trends influence arrears performance varies among the states and territories. We expect New South Wales and Victoria to continue to record lower arrears than the more resource-oriented states of Western Australia and Queensland. We expect the ratings performance of all asset classes to remain largely stable in 2017, given a build-up in credit support to senior tranches of Australian RMBS and asset-backed securities transactions. Subordinated tranches and those with small pools of RMBS and borrower concentrations have more exposure to tail-end risk and are more at risk of lowered ratings.
