Table of Contents
Securitisation — the financial process of transforming loans and other financial assets into tradable securities — is today a core part of the Australian financial system, underpinning funding for lenders, strengthening market liquidity, and diversifying investor opportunities. Although often discussed in the context of global financial markets, the Australian journey with securitisation has its own distinct narrative — shaped by evolving regulation, innovation by non-bank lenders, economic cycles, and policy responses to crises.
What Is Securitisation?
At its core, securitisation involves pooling financial assets — commonly mortgage loans — and converting them into securities that can be sold to investors. These securities, often structured into different “tranches” based on risk and return, provide investors with exposure to the underlying assets’ cash flows while enabling originators (such as banks or mortgage lenders) to access funding beyond traditional deposit or loan markets.
In Australia’s case, securitisation has been particularly important for residential mortgage-backed securities (RMBS), where home loans are packaged and sold as tradable instruments.
Early Development: 1980s–1990s
The seeds of securitisation in Australia were sown in the late 20th century, against a backdrop of broader financial deregulation and innovation. During the 1980s and early 1990s, Australia’s financial system was undergoing major structural transformation, with deregulation that encouraged competition and new financial products. This period saw the early creation of asset-backed securities markets, where financial institutions began experimenting with packaging loans to tap into capital markets — much like their counterparts in the United States and Europe.
The first formalised securitisation issuance in Australia occurred in the early 1990s, establishing a foothold for mortgage lenders to source alternative funding. Over the remainder of the decade, securitisation gradually grew as an instrument for both banks and non-bank lenders.
The 2000s: Growth and Recognition
By the early 2000s, securitisation had become widely recognised in Australia, especially as the housing market expanded. Residential mortgage-backed securities were increasingly issued by both big banks and specialist lenders, enhancing liquidity in the housing finance sector. The financial landscape was also influenced by global trends — for example, collateralised debt obligations (CDOs) became known in Australia as part of broader securitisation structures, although they did not play as central a role domestically as they did internationally prior to the global financial crisis (GFC).
During this era, non-major banks and specialist lenders leveraged securitisation to compete with the oligopolistic major banks, carving out niche funding sources and expanding consumer choice. Innovative lenders such as Aussie Home Loans introduced securitisation as part of their business strategies in the 1990s, helping reduce funding costs and offer more competitive mortgage products.
The Global Financial Crisis: Stress and Support
The GFC of 2007–2009 tested securitisation markets worldwide. The crisis originated in part from weaknesses in the U.S. subprime mortgage securitisation market, leading to broader investor distrust of securitised products. Australian markets felt these effects through increased risk aversion and wider spreads on RMBS. In the early stages of the GFC, RMBS spreads widened dramatically — by over 400 basis points — as some offshore investors sold their Australian RMBS holdings and liquidity dried up.
Importantly, Australia’s securitisation markets remained more resilient than many others. This was due to the strength of the underlying mortgage collateral, prudent lending standards, and the relatively limited exposure of Australian institutions to complex structured products such as CDOs. Moreover, the Australian Office of Financial Management (AOFM) stepped in to support the market by investing in securitised products to sustain investor demand and fund issuers through challenging conditions.
Post-GFC Reform and Resilience
Following the crisis, regulators and policymakers sought to reinforce the financial system. The Twin Peaks regulatory framework consolidated prudential oversight under the Australian Prudential Regulation Authority (APRA), while the Reserve Bank of Australia (RBA) continued its focus on stability and market functionality. These reforms strengthened confidence in Australia’s financial system and indirectly supported the securitisation market’s recovery.
As markets stabilised, RMBS issuance reclaimed a solid footing. Non-bank issuance grew, reflecting lenders’ continued need for diverse funding sources, while banks — particularly smaller institutions — used securitisation strategically to manage funding costs and balance sheet liquidity.
Securitisation Through the Pandemic
The COVID-19 pandemic posed another unique challenge. During the initial shock of early 2020, RMBS market spreads widened modestly — by around 40 basis points — compared with much larger moves during the GFC. But this disruption proved short-lived, and the securitisation market quickly regained its footing. Securitised funding continued to support non-bank lenders, and overall issuance remained robust through 2020 and 2021.
Several policy responses helped this resilience. Alongside broad measures to support the economy, the government introduced the Structured Finance Support Fund (SFSF) administered by the AOFM, designed to encourage investment in securitisation and maintain competitive funding conditions for smaller lenders.
By late 2022, RMBS spreads had narrowed to levels not seen since before the GFC, and issuance volumes were particularly strong. This bounce-back highlighted the adaptability of the market and its importance as a funding channel even during systemic stress.
Current Market and Future Prospects
In recent years, Australian securitisation markets have continued to evolve. RMBS remains a vital source of funding for non-bank lenders, with around 70% of mortgages issued by non-bank lenders backed by securitisation markets by 2022.
Innovations like green RMBS — where the underlying loans are linked to environmentally sustainable housing — show how securitisation is adapting to broader investor preferences and policy priorities. Moreover, as financial conditions change with interest-rate cycles, issuers and investors are navigating pricing shifts while seeking to maintain market depth and breadth.
Looking ahead, the securitisation market in Australia is poised to remain a flexible and resilient source of funding. Potential structural changes, such as adjustments to central bank liquidity facilities or regulatory benchmarks, may shape issuance patterns, but the underlying foundations — robust prudential oversight, diversified investor demand, and strong collateral performance — suggest a market that has matured significantly since its early days.
Conclusion: A Homegrown Market with Global Connections
Australia’s securitisation history reflects a journey from modest beginnings through periods of innovation, stress, and reform. While global events have influenced market sentiment — most notably during the GFC and the pandemic — Australian securitisation has shown remarkable resilience and adaptability.
Today, RMBS and other securitised products continue to be an integral part of Australia’s financial ecosystem, supporting lending activities, enhancing liquidity, and offering investors a diverse array of fixed-income opportunities. As the market navigates future uncertainties, its evolution will likely continue to balance innovation with stability — a testament to the strength of the institutions and regulatory frameworks that underpin it.
