Australian Securitisation Investor Seminar 2019 - Australian Securitisation Forum

 
Australian Securitisation Investor Seminar 2019 - Australian Securitisation Forum
Australian Securitisation
Investor Seminar 2019
Australian Securitisation Investor Seminar 2019 - Australian Securitisation Forum
Opening Remarks
Pablo Castro
Product Manager, Bloomberg LP
Australian Securitisation Investor Seminar 2019 - Australian Securitisation Forum
Australia’s economic outlook
and consequences for a
declining housing market

Moderator:
Laurence Davison, KangaNews

Presenters:
Bill Evans, Westpac
Tapas Strickland, National Australia Bank
Australian Securitisation Investor Seminar 2019 - Australian Securitisation Forum
UK Securitisation
event 2019

Westpac Institutional Bank
Presented by Bill Evans
June 2019.
Australian Securitisation Investor Seminar 2019 - Australian Securitisation Forum
The Economy

Note: Past performance is not a reliable indicator of future performance. The forecasts given above are predictive in character. Whilst every effort has been taken to
ensure that the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and
uncertainties. The results ultimately achieved may differ substantially from these forecasts.

2
Australian Securitisation Investor Seminar 2019 - Australian Securitisation Forum
Australian GDP growth outlook

    % yr                                    2018              2019(f)   2020(f)

    GDP – RBA (May)                        2.3 (a)              2.60     2.75

    GDP – Westpac                          2.3 (a)              2.2      2.5

    Consumer – RBA                         2.0 (a)              2.0      2.6

    Consumer – Westpac                     2.0 (a)              2.1      2.4
Source: ABS, RBA May Statement on Monetary Policy, Westpac Economics

3
Australian Securitisation Investor Seminar 2019 - Australian Securitisation Forum
Household savings ratio – set to rise
     % income                                 % income
12                                                        12

9                                                         9

6                                                         6

3                                                         3

0                                                         0
         Sources: ABS, Westpac Economics
-3                                                        -3
Dec-90 Dec-94 Dec-98 Dec-02 Dec-06 Dec-10 Dec-14 Dec-18
     4
6m annualised change in the 2qtr average

Six month annualised change in two
quarter average

                                                                      Professional
                            Cyclical            Non-cyclical                              Total
                                                                        services
     Feb-2016                  2.0                   2.5                    5.4           2.5

     Aug-2016                  0.6                   2.9                   -1.6           1.1

     Feb-2017                  0.5                   2.0                    0.4           1.0

     Aug-2017                  3.8                   6.3                   -2.4           4.1

     Feb-2018                  2.9                   1.5                    5.0           2.6

     Aug-2018                  1.4                   3.0                    6.8           2.3

     Feb-2019                 -0.4                   5.6                    7.9           2.2
Sources: ABS, Westpac Economics.
*Non- cyclical is agriculture, utilities, public admin & safety, education, and health.
*cyclical is the residual of total – non-cyclical – professional services

5
Labour market to weaken; slack already
     %                                                                                    %
10                                                                                            7.5
                underemployment smoothed (lhs)                                  Westpac fcs   7.0
9
                unemployment smoothed (rhs)                                                   6.5
8                                                                                             6.0
                                                                                              5.5
7                                                                                             5.0
                                              Underemployment: the share of                   4.5
6                                              labour force who are employed
                                               and willing to work more hours                 4.0
         Sources: ABS, Westpac Economics.
5                                                                                             3.5
Dec-02                Dec-06                Dec-10          Dec-14              Dec-18

     6
Victorian wages are more responsive
                                   %yr
10 % inverted                              4.5 % yr
                    NSW                                 Victoria % inverted
         Sources: ABS, Westpac Economics
                                                                            10

11                                         4.0                             11

12                                         3.5                             12

13                                         3.0                             13

14                                         2.5                             14

15        undertilisation                  2.0        wages (lhs)          15
          leading 2 qtrs (lhs)
16                           1.5                         16
 Dec-99 Dec-05 Dec-11 Dec-17 Mar-00 Mar-06 Mar-12 Mar-18

     7
Wages growth sluggish at best
    % ann
7

6             WPI         EBA all current
5
                                                                          forecast

4

3

2
            Sources: ABS, Westpac Economics, RBA, Commonwealth Treasury
1
Dec-94 Dec-98 Dec-02 Dec-06 Dec-10 Dec-14 Dec-18
    8
Core inflation – just not reaching band
    %yr                                                                   %qtr
6                                                                                3.0
                                          avg RBA core CPI* %qtr (rhs)
5                                                                                2.5
                                          avg RBA core CPI* %yr (lhs)
4                                 * average of s.a. trimmed mean &   Forecasts
                                                                                 2.0
                                        weighted median CPI.
3                                                                                1.5
2                                                                                1.0
1                                                                                0.5
0                                                                                0.0
                   Sources: ABS, Westpac Economics
-1                                                                               -0.5
 Dec-08   Dec-10     Dec-12        Dec-14            Dec-16    Dec-18       Dec-20

    9
Housing

Note: Past performance is not a reliable indicator of future performance. The forecasts given above are predictive in character. Whilst every effort has been taken to
ensure that the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and
uncertainties. The results ultimately achieved may differ substantially from these forecasts.

10
Dwelling prices: all cities are now falling!
      %                                                               %
 30                                                                        30
 25      Sydney
         Melbourne                                                         25
 20      Brisbane                                                          20
 15      Perth                                                             15
 10
                                                                           10
  5
                                                                           5
  0
 -5                                                                        0
-10                                                                        -5
-15                * all dwellings, 6mth annualised                        -10
                   Sources: CoreLogic, Westpac Economics
-20                                                                        -15
  Mar-11        Mar-13              Mar-15               Mar-17   Mar-19
     11
Australian dwelling prices – falls easing
     %ann                                                          %mth
 21
 18                        mthly (rhs)           annual (lhs)               6
 15
 12                                                                         4
  9
  6                                                                         2
  3
  0                                                                         0
 -3
 -6                                                                         -2
 -9                        Sources: CoreLogic, Westpac Economics
-12                                                                         -4
  Apr-07 Apr-09   Apr-11   Apr-13       Apr-15         Apr-17      Apr-19

   12
Sydney dwelling prices – falls easing
     %ann                                                         %mth
 21
 18       mthly (rhs) annual (lhs)                                         6
 15
 12                                                                        4
  9
  6                                                                        2
  3
  0                                                                        0
 -3
 -6                                                                        -2
 -9                       Sources: CoreLogic, Westpac Economics
-12                                                                        -4
  Apr-07 Apr-09 Apr-11 Apr-13 Apr-15 Apr-17                       Apr-19

     13
Consumer sentiment: ‘time to buy a dwelling’

170 index                                                          index 170
                          NSW                Vic        Qld   WA   latest
150                                           latest                        150

130                                                                         130

110                                                                         110

 90                                                                         90

 70                                                                         70
       *3mth avg
       Source: Melbourne Institute, Westpac Economics
 50                                                                         50
  May-06 May-10 May-14 May-18 May-06 May-10 May-14 May-18
      14
Auction clearance rates vs prices: Sydney
      %                                                                                             %
              'withdrawal adjusted' clearance rate (lhs)*                           estimates for        7.5
90            unadj'd clearance rate (lhs)
                                                                                    latest week
                                                                                    (solid is

80            price growth (rhs)^                                                   withdrawal           5.0
                                                                                    adj’d rate)

70                                                                                                       2.5
60
                                                                                                         0.0
50
                                                                                                         -2.5
40    *clearance rate minus withdrawal rate devn from avg;
      ^centred rolling 3mth %ch                              Source: APM, CoreLogic, Westpac Economics
30                                                                                                       -5.0
 May-03          May-06           May-09            May-12          May-15          May-18
     15
NSW: housing affordability
      %                                                                                 %
12                                                                                          12
                   *%income required to save a deposit and
14                 service mortgage of 75% of median priced                 improve         14
16                 dwelling (avg over 5yr pre-purchase and 5yr                              16
                   post purchase periods)
18                                                                        deteriorate       18
20                                                                                          20
22                                                                                          22
24                                                                                          24
26 30yr
     avg                                                                                    26
28                                                  projection includes rate cuts
                                                                                            28
30 Sources: CoreLogic, ABS,                         and assumes prices rise 10%             30
   Westpac-Melbourne Institute                      over next 12mths
32                                                                                          32
 Mar-98 Mar-01 Mar-04 Mar-07 Mar-10 Mar-13 Mar-16 Mar-19

     16
NSW: affordability & buyer sentiment
      index                                                                              %
200                                                                                            12
                                          affordability (rhs)*                                 14
180                 *%income required to save a deposit and service mortgage of
                    75% of median priced dwelling (avg over 5yr pre-purchase and               16
160                 5yr post purchase periods)                                                 18
140                                                                                            20
120                                                                                            22
               improve
100    30yr                                                                                    24
       avg                                                                                     26
 80           deteriorate
                                                   projection includes rate cuts and assumes
                                                                                               28
 60   Sources: CoreLogic, ABS,                     prices decline at 5% annual pace over       30
      Westpac-Melbourne Institute                  remainder of 2019 and are flat in 2020
 40                                                                                            32
  Mar-98 Mar-01 Mar-04 Mar-07 Mar-10 Mar-13 Mar-16 Mar-19
      17
NSW price corrections: affordability drivers
      pts                 contribution to improvement                       pts
10                                                                                10
 9                       mortgage rate and incomes              prices            9
                      ^2017-20 projection assumes 50bp rate cut
 8                    and a further 3.8% decline in prices
                                                                                  8
 7                                                                                7
                      Source: ABS, RBA, Westpac Economics
 6                                                                                6
 5                                                          adjustment            5
                                                            to date
 4                                                                                4
 3                                                                                3
 2                                                                                2
 1                                                                                1
 0                                                                                0
            1990-93         2007-08                2010-12           2017-20^

     18
Vic price corrections: affordability drivers
      pts                contribution to improvement                         pts
10                                                                                 10
 9                       mortgage rate and incomes*                 prices         9
 8                    ^2017-20 projection assumes 50bp rate                        8
                      cut and a further 10% decline in prices
 7                    Source: ABS, RBA, Westpac Economics
                                                                                   7
 6                                                                                 6
 5                                                                                 5
                                                            adjustment
 4                                                          to date                4
 3                                                                                 3
 2                                                                                 2
 1                                                                                 1
 0                                                                                 0
            1990-93        2007-08               2010-12            2017-20^

     19
Housing finance, NSW – hit to investors
      AUDbn/mth              value of housing finance             AUDbn/mth
5.0                                                                                 5.0
           'upgraders'                                             peak to latest
4.5                                                                                 4.5
           investors
4.0        foreign buyers*                                                          4.0
3.5        FHBs                                                                     3.5
3.0 *based on annual                                                    –24%        3.0
     FIRB approvals
2.5                                                                                 2.5
2.0                                                                     –48%        2.0
1.5                                                                                 1.5
1.0                                                                     –24%
                                                                                    1.0
0.5                                                                                 0.5
                           Sources: ABS, Westpac Economics              –82%
0.0                                                                                 0.0
 Feb-99      Feb-03      Feb-07          Feb-11          Feb-15   Feb-19
     20
Consumers extremely risk averse
                                 ‘wisest place for savings’?
60 %                                                                                      %   60
               repay debt              deposits        shares         real estate
50                                                              * selected options only       50
                                                                (others not shown);
40                                                              ‘repay debt’ only             40
                                                                surveyed since 1997

30                                                                                            30

20                                                                                            20

10                                                                                   45yr     10
                                                                                     lows
     Sources: Melbourne Institute, Westpac Economics
0                                                                                             0
Mar-89 Mar-99 Mar-09 Mar-19 Mar-89 Mar-99 Mar-09 Mar-19
     21
Housing finance: largest falls behind us
       % chg                                                         % chg
 0                                                                           0
 -2                                                                          -2
 -4                                                                          -4
 -6                                                                          -6
 -8                                                                          -8
                    6 month change                    Westpac fc/s
-10                                                                          -10
-12                                                                          -12
-14                                                                          -14
       Sources: ABS, Westpac Economics
-16                                                                          -16
           2017 H2        2018 H1        2018 H2   2019 H1     2019 H2

      22
Australian dwelling approvals – sharp fall
      '000                                                                       '000
             houses (lhs)
25           units (lhs)                                                    Westpac     250
                                                                            forecasts
             total annualised (rhs)
20                                                                                      200

15                                                                                      150

10                                                                                      100

5                                                                                       50
                                      *3mth avg, dotted lines are monthly
0                                                                                       0
Mar-04         Mar-07       Mar-10    Mar-13          Mar-16            Mar-19
     23
Australia’s housing stock balance
      '000                                                  '000
380                                                                 380
              estimated housing stock deficiency          Westpac
330                                                                 330
              dwelling completions (qtly, annualised)
280                                                                 280
           underlying
230                                                                 230
180                                                                 180
130                                                                 130
 80                                                                 80
 30                                                                 30
                                    Sources: ABS, Westpac Economics
-20                                                                 -20
  Dec-94 Dec-98 Dec-02 Dec-06 Dec-10 Dec-14 Dec-18

      24
Loans in Negative Equity – mining related
      %                   Share of balances, Feb 2019                            %
15              Source: ABS, CoreLogic, RBA, Securitisation System
                                                                                     15

                       Owner Occupier
12                                                                                   12
                       Investor
9                                                                                    9

6                                                                                    6

3                                                                                    3

0                                                                                    0
          AUS   VIC & TAS           NSW &                SA          QLD   WA & NT
                                     ACT
     25
The Markets
Note: Past performance is not a reliable indicator of future performance. The forecasts given above are predictive in character. Whilst every effort has been taken to
ensure that the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and
uncertainties. The results ultimately achieved may differ substantially from these forecasts.

26
Current forecasts – February 2019

                  Latest     Mar 19   Jun–19   Sep–19   Dec 19   Dec 20

 RBA Cash          1.50       1.50     1.50     1.25     1.00     1.00

 Fed Funds        2.375      2.375    2.375    2.375    2.625    2.625

 AUD/USD          0.717       0.71     0.70     0.68     0.68     0.70

Source: Westpac Economics.

27
21 February markets – Westpac calls cut
         USD                                                               %
0.722     Jobs print +39k                            Westpac makes call        1.72
         vs. expected +15k                           for 25bps rate cuts
                                                       in Aug and Nov          1.70
                                                            2019
0.719                                                                          1.68
                                                                               1.66

0.716                                                                          1.64
              AUD/USD (lhs)
                                                                               1.62
              Aus 3yr bond future yield (rhs)
0.713 Sources: Bloomberg, Westpac Economics                                    1.60
   11:00am          11:30am              12:00pm   12:30pm        1:00pm

        28
Westpac forecast and market RBA pricing
       %                                                                       %
                                                            Market 20 Feb**
1.6                                                         Market now*            1.6
                                                            Westpac forecast
1.4                                                                                1.4

1.2                                                                                1.2

1.0                                                                                1.0

0.8                                                                                0.8
           Sources: Bloomberg, Westpac Economics
           *Pricing as at 23 May
0.6                                                                                0.6
      Mar 19            Jun 19           Sep 19    Dec 19     Mar 20      Jun 20
      29
Current forecasts – May 2019

                     Latest   Jun–19   Sep–19   Dec 19   Dec 20

 RBA Cash              1.55    1.25     1.00     0.75     0.75

 AU 10 year            1.60    1.60     1.65     1.70     1.90

 Fed Funds            2.375   2.375    2.375    2.375    2.375

 US 10 year            2.35    2.40     2.50     2.60     2.55

 3yr swap              1.20    1.20     1.15     1.10     1.30

 AUD/USD               0.69    0.69     0.68     0.66     0.68
Source: Westpac Economics.

30
RBA: major bank’s deposits by interest rates

                                   *Interest rates were
                                   reported as weighted
                                   average rates for various
                                   deposit product types

                                 Source: RBA, Major Banks

 31
Funding spreads and the cash rate

3.0 %                                                                  %    3.0
                                    Sources: Bloomberg, Westpac Economics

2.5                                                                         2.5

2.0                                                                         2.0

1.5        AUD OIS 3m                                                       1.5
           RBA cash rate
           AUD implied by fwds 3m
           BBSW 3m
1.0                                                                         1.0
  Jan 14               Jan 16               Jan 18

      32
Westpac forecasts – Aus-US spread
       bps                                                                    bps
  0                                                                                 0

 -50                                                                                -50
                                                                           -60
-100            -80            -85         -90      -85         -80                 -100
            -113
-150                      -138                                                      -150
                                        -163     -163       -163       -163
-200                                                      Cash spread               -200
            Source: Westpac Economics                     10 year bond spread
-250                                                                                -250
            Jun 19        Sep 19        Dec 19   Mar 20     Jun 20     Dec 20
       33
AUD – rate differential and commodities
      USD                            ppts               USD                 Index
                                              8
               AUD/USD lhs
1.2            AU-US 2y swap rhs                  1.2
                                              6
                                                                                     6
1.0                                               1.0
                                              4
0.8                                               0.8
                                              2
                                                                                     5
0.6                                           0 0.6
                                                              AUD/USD lhs
0.4                           -2 0.4                          log WCFIBI cmdty rhs
                                                               4
  Jan-00 Jan-06 Jan-12 Jan-18      Jan-00 Jan-06 Jan-12 Jan-18
      Sources: Bloomberg, Westpac Economics
      34
Wages supportive of stronger inflation?
     %yr                                                                   %yr
5                                                                                 5
                                                         Hourly earnings
4                                                        Core PCE inflation       4

3                                                                                 3

2                                                                                 2

1                                                                                 1
         Sources: BLS, Macrobond, Westpac Economics
0                                                                                 0
 2007             2009          2011           2013   2015    2017         2019

    35
Conclusion
• Gradual rise in unemployment rate locks in rate cuts.
• Current extent of house price falls in Sydney and Melbourne unprecedented but
  a little more to come (14%; 11% so far; another 5 % in 2019; flat in 2020 )
• Affordability more stretched than in previous cycles; reliance on prices.
• Risk flashpoints : China’s current account deficit; negative equity in WA/NT.
• Inflation challenged by housing downturn- rents; construction costs.
• Collapse in dwelling approvals signals big drag from national residential
  construction in 2019 and 2020; near term o’supply; shortages from 2020 H2.
• RBA’s priorities have moved from household debt to unemployment and wages.
• The RBA will cut the cash rate by 25bps in June; August and November 2019;
  AUD to USD0.66; FED on hold through 2019 and 2020.
• China stimulus to work; low inflation risk to FED policy; symmetric target; Dow.

  36
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Australian RMBS, performance
trends and outlook

Moderator:
James Kanaris, Westpac

Panellists:
Imran Shaffi, State Street
Peter Casey, ING Australia
Richard McCarthy, Perpetual
Todd Lawler, Bluestone
Australian RMBS: Performance Trends
    and Outlook
    Moderator: James Kanaris, Director Structured Finance, Westpac
    Panellists:
    • Peter Casey, Deputy Treasurer, ING Australia
    • Richard McCarthy, Group Executive, Perpetual Corporate Trust
    • Todd Lawler, Chief Financial Officer, Bluestone
    • Imran Shaffi, Vice President Global Treasury, State Street

    10 June 2019
1
RMBS Issuance

     bn
                                                                    RMBS Issuance 2004-2019   bn
     70                                                                                        70
          Source: Westpac Securitisation & Covered Bond Research, Bloomberg
     60                                                                                       60

     50                                                                           Non-AUD     50

     40                                                                           AUD         40

     30                                                                                       30

     20                                                                                       20

     10                                                                                       10

      0                                                                                       0
          2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

                  Australian RMBS: Performance Trends and Outlook
2
RMBS Issuance
    bn                          ADI & Non-ADI                                                             bn             Prime & Non-Conforming
25                Source: Westpac Securitisation & Covered Bond Research, Bloomberg
                                                                                                          35                                                          Prime
                     22.6                                                                                      Source: Westpac Securitisation & Covered
                                                                          22.3       ADI Issuance              Bond Research, Bloomberg
         20.9                                                                                                                                             29.0
                                                                                                          30                                                          Non-
                                      19.3                                           Non ADI Issuance
20                                                                                                                        26.6                                        Conforming
                                                                                                               24.2
                                                                                       15.9
                                                                                                          25                         22.5
                                                                              14.6
15                                                                                                        20                                                       18.3
                                                        12.6
                                                                                     12.0                                                       16.4

                                                                                                    9.4   15
10                                                            8.3
                                                                                                                                                                            10.5
                                                                                                                                                                      9.6
                        6.3
                                            5.6                                               5.4
                                                                                                          10                                                 8.0
            5.2
    5                                                                                                                                              4.5                         4.2
                                                                                                          5                   2.3        2.3
                                                                                                                   1.9

     -                                                                                                     -
         2013        2014             2015              2016              2017       2018     2019             2013 2014 2015 2016 2017 2018 2019

                            Australian RMBS: Performance Trends and Outlook
3
RMBS Issuance
                                                                          Issuer Type
    bn                                                                                                                                       bn
    14                                                                                                                                       14
                                                                                                  Source: Westpac Securitisation & Covered
                                       2013                                                                     Bond Strategy, Bloomberg
    12                                 2014                                                                                                  12
                                       2015
    10                                                                                                                                       10
                                       2016

     8                                 2017                                                                                                  8
                                       2018
     6                                 2019                                                                                                  6

     4                                                                                                                                       4

     2                                                                                                                                       2

     0                                                                                                                                       0
         Major Bank                 Other ADI / CUBS Non-Bank Originator Non Conforming           Other Bank            Regional Bank

           ADI                                 ADI              Non-ADI                 Non-ADI      ADI                       ADI

              Australian RMBS: Performance Trends and Outlook
4
RMBS Issuance
             2016                                                     Currency                                       2017
            6%                                                                                                      4%1%

                                                  USD                                                                                USD
                                                  EURO                                                                               EURO
                                                  AUD                                                                                AUD
      94%                                                                                                     95%

                                                  2018                                                                            2019
                                                   10%                                                                            7% 2%
                                                          1%

                                                                      USD                                                                   USD
                                                                      EURO                                                                  EURO
                                                                      AUD                                                                   AUD
                                    89%                                                                                     91%

                                                               Source: Westpac Securitisation Research, Bloomberg

        Australian RMBS: Performance Trends and Outlook
5
RMBS Performance
     European & Australian Arrears 30+ Days                                 Australian Prime Arrears
                                                                                                                                                    SPIN 90+ Days Arrears
9.00%                                                   Source: S&P,
                                                        Westpac
                                                                           2.0%
8.00%            Spain                                  Securitisation
                                                        Research
                                                                           1.8%                                                                     SPIN 30+ Days Arrears

7.00%            Italy                                                     1.6%                                                                     SPIN (Inc Non-Capital Markets
                                                                           1.4%                                                                     Issuance) 90+ Days Arrears
6.00%            UK
                                                                           1.2%
5.00%            Dutch                                                     1.0%
4.00%
                 Australia                                                 0.8%
3.00%                                                                      0.6%
2.00%                                                                      0.4%
1.00%                                                                      0.2%            Source: S&P, Westpac
0.00%                                                                      0.0%

                                                                                  Feb-09

                                                                                                    Aug-10
                                                                                                             May-11

                                                                                                                                                                                     May-17
                                                                                                                      Feb-12

                                                                                                                                        Aug-13
                                                                                                                                                 May-14
                                                                                                                                                          Feb-15

                                                                                                                                                                            Aug-16

                                                                                                                                                                                              Feb-18
                                                                                           Nov-09

                                                                                                                               Nov-12

                                                                                                                                                                   Nov-15

                                                                                                                                                                                                       Nov-18
        Mar-02
        Mar-03
        Mar-04
        Mar-05
        Mar-06
        Mar-07
        Mar-08
        Mar-09
        Mar-10
        Mar-11
        Mar-12
        Mar-13
        Mar-14
        Mar-15
        Mar-16
        Mar-17
        Mar-18
        Mar-19

                         Australian RMBS: Performance Trends and Outlook
 6
RMBS Performance
     Prime Australian 30+ Arrears – Investment & OO                                                Non-Conforming Australian 30+ Arrears

2.00%                                                                   Source: S&P, Westpac      25%
                                                                        Securitisation Research
1.80%                                                                                                                                      90 + Days
1.60%                                                                                             20%
                                                                                                           Source: S&P                     61 to 90 Days
1.40%
1.20%                                                                                             15%                                      31 to 60 Days
1.00%
0.80%                                                                                             10%
0.60%
0.40%              Investment                           Owner-occupied                            5%
0.20%
0.00%                                                                                             0%

                      Australian RMBS: Performance Trends and Outlook
 7
RMBS Performance -Losses
                                                              Cumulative Gross Losses

                                                               Source: S&P

           S&P: “All gross losses to date in prime and nonconforming Australian RMBS transactions have
               been covered by lenders‘ mortgage insurance (LMI) claims paid and excess spread.”

            Australian RMBS: Performance Trends and Outlook
8
RMBS Prepayments
     Australian Prepayment Rate – Prime & NC                                                                                           Australian Prepayment Rate – Prime
45.0%                                                                                                                                 26.0%

40.0%                                                                                                                                 24.0%

35.0%                                                                    Prime                                                        22.0%
                                                                         Non Conforming                                               20.0%
30.0%
                                                                                                                                      18.0%
25.0%
                                                                                                                                      16.0%
20.0%
                                                                                                                                      14.0%
15.0%                                                                                                                                 12.0%
                 Source:S&P                                                                                                                    Source: S&P
10.0%                                                                                                                                 10.0%
        Mar-06
                 Mar-07
                          Mar-08
                                   Mar-09
                                            Mar-10
                                                     Mar-11
                                                              Mar-12
                                                                       Mar-13
                                                                                Mar-14
                                                                                         Mar-15
                                                                                                  Mar-16
                                                                                                           Mar-17
                                                                                                                    Mar-18
                                                                                                                             Mar-19

                                                                                                                                              Mar-11
                                                                                                                                              Sep-11
                                                                                                                                              Mar-12
                                                                                                                                              Sep-12
                                                                                                                                              Mar-13
                                                                                                                                              Sep-13
                                                                                                                                              Mar-14
                                                                                                                                              Sep-14
                                                                                                                                              Mar-15
                                                                                                                                              Sep-15
                                                                                                                                              Mar-16
                                                                                                                                              Sep-16
                                                                                                                                              Mar-17
                                                                                                                                              Sep-17
                                                                                                                                              Mar-18
                                                                                                                                              Sep-18
                                                                                                                                              Mar-19
                                     Australian RMBS: Performance Trends and Outlook
 9
RMBS Pricing Performance

     bp
                                      Senior AAA Prime RMBS Trading Margin 2.5-3.5yr WAL
     180
     160
     140
     120
     100
      80
      60
      40                 Major Bank                             Regional Bank      Other Bank     Other ADI (CUBS)      Non ADI
      20
                   Source: Westpac Securitisation & Covered Bond Strategy

          -
          Jan-10   Jan-11                    Jan-12                  Jan-13     Jan-14   Jan-15     Jan-16     Jan-17      Jan-18   Jan-19

                   Australian RMBS: Performance Trends and Outlook
10
11
                                                                                                                                             bps

                                                                                                                                      100
                                                                                                                                             150
                                                                                                                                                   200
                                                                                                                                                         250
                                                                                                                                                               300

                                                               0
                                                                                                                              50
                                                   Resimac 16-1
                                                   Firstmac 16-2
                                                      Triton 16-1
                                                   Progress 16-1
                                                   Firstmac 16-3
                                                      SMHL 16-1

                                                                                                                                   ADI
                                                        AFG 16-1
                                                       ConQuest…
                                                       Kingfisher…
                                                   Resimac 16-2
                                                       Reds 17-1
                                                     Apollo 17-1
                                                    Torrens 17-1
                                                       Light 17-1

                                                                                                                                   Non-ADI
                                                   Resimac 17-1
                                                     IMB 2017-1

Australian RMBS: Performance Trends and Outlook
                                                   Progress 17-1
                                                  Conquest 17-1
                                                     Harvey 17-1
                                                       Medallion…
                                                      Triton 17-1
                                                                                                                                                                                                        RMBS Pricing Performance

                                                        ABA 17-1
                                                     Barton 17-1
                                                  RESIMAC 17-2
                                                          Pepper…
                                                    Torrens 17-3
                                                        AFG 17-1
                                                      SMHL 17-1
                                                     Apollo 17-2
                                                   Firstmac 17-2
                                                        HBS 17-1
                                                      Triton 17-2
                                                       Medallion…
                                                   Firstmac 17-3
                                                   Pinnacle 17-1
                                                          Pepper…
                                                   Progress 17-2
                                                   Resimac 17-3
                                                          NRMBS…
                                                   Firstmac 18-1
                                                       ConQuest…
                                                       Light 18-1
                                                     Apoilo 18-1
                                                   Resimac 18-1
                                                       Reds 18-1
                                                          Pepper…
                                                  Firstmac 18-2
                                                        AFG 18-1
                                                   Progress 18-1
                                                     Triton 18-1
                                                                                                                                                               RMBS Primary Margin - AAA Subordinated

                                                      SMHL 18-2
                                                       Medallion…
                                                          Pepper…
                                                   Firstmac 18-3
                                                  RESIMAC 18-2
                                                    NRMBS 18-2
                                                      Triton 19-1
                                                      Triton 19-2
                                                   Resimac 19-1
                                                        AFG 19-1
                                                                     Source: Westpac Securitisation & Covered Bond Research

                                                    Pepper 19-1
                                                       Mortgage…
                                                   Firstmac 19-2
                                                      SMHL 19-1
RMBS Pricing Performance
                                                                        Non AAA Prime Issuance 2017-19*
     800
                                                  AA                           A            BBB             BB               B            Unrated
     700

     600

     500

     400
bps

     300

     200

                                                                                                                                                                                   Mortgage House 19-

                                                                                                                                                                                   Firstmac 2019-2
                                                                                                                                                                    RESIMAC 19-1

                                                                                                                                                                                                         SMHL 2019-1
                                                                                                                                                                    Pepper 19-1
     100

                                                                                                                                                   Triton 19-1

                                                                                                                                                                    Triton 19-2

                                                                                                                                                                    AFG 19-1
                    Source: Westpac Securitisation & Covered Bond Research
         0

                                                                                                                                                                                   1
         Apr-17          Jun-17         Aug-17              Oct-17             Dec-17   Feb-18    Apr-18   Jun-18   Aug-18       Oct-18   Dec-18           Feb-19       Apr-19                          Jun-19
     *Note Only Transactions With Disclosed Pricing Are Shown

                                   Australian RMBS: Performance Trends and Outlook
12
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 clients”. With this in mind, Westpac expressly prohibits you from passing on the information in this communication to        financial instruments or derivatives in relation to the issuers covered by the investment recommendations they
 any third party. In particular this communication and, in each case, any copies thereof may not be taken, transmitted        produce.
 or distributed, directly or indirectly into any restricted jurisdiction                                                      Westpac has implemented policies and procedures, which are designed to ensure conflicts of interests are managed
 UK and other EU: The contents of this communication, which have been prepared by and are the sole responsibility of          consistently and appropriately, and to treat clients fairly.
 Westpac Banking Corporation London and Westpac Europe Limited. Westpac (a) has its principal place of business in            The following arrangements have been adopted for the avoidance and prevention of conflicts in interests associated
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 Branch No. BR00106), and (b) authorised and regulated by the Australian Prudential Regulation Authority in Australia.        (i) Chinese Wall/Cell arrangements;
 Westpac is authorised in the United Kingdom by the Prudential Regulation Authority. Westpac is subject to regulation         (ii) physical separation of various Business/Support Units;
 by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority. Details about the          (iii) Strict and well defined wall/cell crossing procedures;
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 This communication is being made only to and is directed at (a) persons who have professional experience in matters          arrangements are adequately monitored.
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 its contents. The investments to which this communication relates are only available to and any invitation, offer or         under the U.S. Securities Exchange Act of 1934 (‘the Exchange Act’) and member of the Financial Industry Regulatory
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 persons. Any person who is not a relevant person should not act or rely upon this communication or any of its                exemption from registration provided by Rule 15a-6 under the Exchange Act and is not subject to all of the
 contents. In the same way, the information contained in this communication is intended for “eligible counterparties”         independence and disclosure standards applicable to debt research reports prepared for retail investors in the United
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 clients”. With this in mind, Westpac expressly prohibits you from passing on the information in this communication to        communication. All disclaimers set out with respect to Westpac apply equally to WCM. If you would like to speak to
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 Market Abuse Regulation (Regulation (EU) 596/2014).
 Investment Recommendations Disclosure                                                                                        Disclaimer continuted overleaf
 Investment Recommendations for Financial Instruments covered by MAR are made in compliance with Article 20 MAR.

14     6 June 2019
ImportantDisclaimers
 Investing in any non-U.S. securities or related financial instruments mentioned in this communication may present
 certain risks. The securities of non-U.S. issuers may not be registered with, or be subject to the regulations of, the SEC
 in the United States. Information on such non-U.S. securities or related financial instruments may be limited. Non-U.S.
 companies may not subject to audit and reporting standards and regulatory requirements comparable to those in
 effect in the United States. The value of any investment or income from any securities or related derivative
 instruments denominated in a currency other than U.S. dollars is subject to exchange rate fluctuations that may have a
 positive or adverse effect on the value of or income from such securities or related derivative instruments.

 The author of this communication is employed by Westpac and is not registered or qualified as a research analyst,
 representative, or associated person under the rules of FINRA, any other U.S. self-regulatory organisation, or the laws,
 rules or regulations of any State. Unless otherwise specifically stated, the views expressed herein are solely those of
 the author and may differ from the information, views or analysis expressed by Westpac and/or its affiliates.

 For the purposes of Regulation AC only: Each analyst whose name appears in this report certifies that (1) the views
 expressed in this report accurately reflect the personal views of the analyst about any and all of the subject companies
 and their securities and (2) no part of the compensation of the analyst was, is, or will be, directly or indirectly related
 to the specific views or recommendations in this report.
 For XYLO Foreign Exchange clients: This information is provided to you solely for your own use and is not to be
 distributed to any third parties. XYLO Foreign Exchange is a division of Westpac Banking Corporation ABN 33 007 457
 141 and ACL 233714. Information is current as at date shown on the publication. This information has been prepared
 without taking account of your objectives, financial situation or needs. Because of this you should, before acting on
 this information, consider its appropriateness, having regard to your objectives, financial situation or needs. XYLO
 Foreign Exchange’s combined Financial Services Guide and Product Disclosure Statement can be obtained by calling
 XYLO Foreign Exchange on 1300 995 639, or by emailing customercare@XYLO.com.au.
 The information may contain material provided directly by third parties, and while such material is published with
 permission, Westpac accepts no responsibility for the accuracy or completeness of any such material. Except where
 contrary to law, Westpac intends by this notice to exclude liability for the information. The information is subject to
 change without notice and Westpac is under no obligation to update the information or correct any inaccuracy which
 may become apparent at a later date. Past performance is not a reliable indicator of future performance. The forecasts
 given in this document are predictive in character. Whilst every effort has been taken to ensure that the assumptions
 on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known
 or unknown risks and uncertainties. The ultimate outcomes may differ substantially from these forecasts.

15     6 June 2019
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