RMBS Performance Watch: Australia - Market Overview - As of June 30, 2020 - S&P Global
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RMBS Performance Watch: Australia - Market Overview As of June 30, 2020
Australian Macroeconomic Environment Recovery from lockdown will be bumpy and protracted
S&P Global Ratings Economic Outlook: Australia
2020f 2021f Outlook Effect on credit quality
Real GDP (4.0) 5.3 Outside of Victoria, Australia has Negative. Reduced economic growth
forecast (% year flattened the COVID-19 curve. The will add debt-serviceability pressure
over year) economy reopened and consumer for some borrowers. Stimulus
activity rebounded in May. Recovery packages, lower interest rates, and
may take longer than expected. access to superannuation should help.
Unemployment 7.5 6.9 Activity is lower than normal, Negative. Rising unemployment will
rate (year subduing labor demand. We do not put pressure on certain borrower
average; %) expect a return to pre-COVID cohorts, influenced by the sectors in
unemployment levels until 2023. which they are employed.
CPI (%) 1.0 1.5 Wage growth remains well below long- Negative. Weak wage growth is likely
term averages. Spare capacity in the to persist for some time. This will be
labor market will keep wage growth offset by historically low interest
subdued for some time. rates.
Policy rate, end 0.25 0.25 The RBA has said it will not increase Positive. Policy rate cuts tend to be
of year (%) the cash rate until unemployment effective in Australia because they
improves. feed through to mortgages, which are
mostly variable rate.
f--Forecast. CPI--Consumer price index. Source: S&P Global Ratings.
3
Job Losses Will Differ By Sector And Geography
Employment exposure Effect on debt serviceability
First wave: The first employment casualties of Leisure, tourism, hospitality
Accommodation and food
Tourism, leisure, COVID-19 due to their sensitivity to workers are more likely to work
services comprise around 7% of
hospitality, lockdowns and closure of international part time and are less represented
total employment.
airline sector borders. in home ownership.
Not severely affected in Q2 due to the A big employer in Australia. A
existing pipeline of work. Construction significant hit to employment in this
Second wave: Construction comprises around
work continued during the first sector could result in debt
Construction 9% of total employment.
lockdowns. A fall in new dwelling serviceability pressures in the so-
approvals may lead to job losses. called mortgage belt.
Not directly affected because Workers typically in higher income
Third wave: employees are more able to work Professional, technical, and and housing debt quartiles.
Professional remotely. Weaker business sentiment scientific services comprise Borrowers who are more highly
services could lead to scaling back of non- around 9% of total employment. leveraged are more vulnerable to
essential consultancy services. income declines.
Source: Employment Exposure Data, Australian Bureau of Statistics; S&P Global Ratings.
4
S&P Global Ratings’ Australian RMBS Outlook
– COVID-19 caused a significant economic contraction in the first part of Q2. A recovery
began during the latter part of Q2 when the economy started to reopen and confidence
returned.
– Household income has been supported by enormous fiscal stimulus, including
JobKeeper payments and access to superannuation withdrawals. Lower interest rates
and mortgage payment deferral schemes have eased debt serviceability pressure.
– Repayment buffers due to a prolonged period of low interest rates will help many
borrowers.
– Setbacks will foster uncertainty for firms and households, leading to cautious behavior.
This will influence investment and hiring decisions.
– Debt-serviceably pressure will likely emerge in Q4 2020, followed by losses beginning in
Q2 2021.
– Lower-rated tranches of nonconforming transactions are more susceptible to ratings
downgrades.
5
Australian RMBS COVID-19 Profiles What do COVID-19 support profiles reveal in the Australian RMBS sector?
COVID-19 Profiles: LTV Ratio Distribution
Prime LTV Distribution – COVID-19 does not materially discriminate
by loan-to-value (LTV) ratio LTV profile.
Total RMBS COVID-19 Hardship
hardship
– Loans with >80% LTV loan exposures make
50% up a greater proportion of loans under COVID
40% arrangements compared to the broader
30% RMBS universe.
20% – This trend is more pronounced in the
10% nonconforming sector.
0% – Half of the loans under COVID-19
and 70%> and 80%> and 90%> and >100% arrangements in the nonconforming sector
100%
COVID-19 Profiles: COVID Support Levels Across
RMBS Originator Types
Average level of Average level of Average level of – Borrowers who work in the airline, tourism,
COVID-19 arrangements COVID-19 arrangements COVID-19 arrangements
and hospitality sectors are more likely to be
under COVID-19 support arrangements.
– COVID-19 support levels are higher in the
nonconforming sector.
– Nonconforming sector has a higher exposure
to self-employed borrowers which comprise
around 50% of total loan exposures in trusts.
– COVID-19 support levels peaked in May-
June, according to anecdotal feedback from
originators.
– COVD-19 hardship levels started to taper
from July, except in Victoria, where
borrowers are less likely to exit COVID-19
hardship given the Stage 4 restrictions in
place.
Data are as of June. 30, 2020. % refers to average % at a trust level.
RMBS--Residential mortgage-backed securities. Source: S&P Global Ratings.
8
COVID-19 Exposure By State
COVID Hardship
COVID-19 hardship Total RMBS Sector
sector
Cairns
1% 1%
Gold Coast
Northern
Territory
24% 23%
Queensland Sunshine Coast
10% 10% Western
Australia
0% 10% 20%
4% 6% South
Australia
33% 32%
1% 2%
New South
Wales Australian
Capital
25% 25% Victoria Territory
1% 2% Tasmania
Data as at June. 30, 2020. %s shown for Cairns, Gold Coast and Sunshine Coast are expressed as a % of total loans in Queensland.
RMBS--Residential mortgage-backed securities. Source: S&P Global Ratings.
9
COVID-19 Hardship Hot Spots
Exposure Exposure Proportional
Area State total RMBS COVID-19 loans increase
Sydney - Inner
NSW 3.31% 4.37% 32% – Popular tourism locations and the outer
South West
suburbs of major capital cities have
Gold Coast QLD 3.13% 4.21% 35% disproportionally higher levels of COVID-19
Melbourne - South support arrangements.
VIC 2.50% 3.21% 28%
East – COVID-19 support levels are likely to remain
elevated in areas where it takes longer to
Melbourne - North
VIC 2.50% 3.25% 30% return to business as usual.
East
– Tourism-dependent areas affected by the
Sunshine Coast QLD 1.55% 1.88% 21% closure of international and state borders
Melbourne - North are likely to have larger employment losses .
VIC 1.30% 1.65% 27%
West – Victoria’s Stage 4 lockdown could result in an
Mornington increase in COVID-19 support levels in
VIC 1.27% 1.93% 52% August.
Peninsula
Sydney - Outer – Borrowers already under COVID-19 hardship
NSW 1.03% 1.25% 21% arrangements in Victoria are more likely to
South West
seek extensions to original mortgage deferral
Richmond - Tweed NSW 0.97% 1.33% 37% arrangement terms than in other parts of the
country.
Sydney - South
NSW 0.89% 1.31% 47%
West
Darwin NT 0.67% 0.93% 38%
Data as at June. 30, 2020. RMBS--Residential mortgage-backed securities. Source: S&P Global Ratings.
10COVID-19 Profile: Investors
Proportion Of Investor Vs. Owner-Occupier Loans
COVID-19 subset Total RMBS
– Investor loans are not disproportionately
80% represented in COVID-19 support RMBS loan
profiles.
70% – LTV ratio profiles of investor loans are
generally more elevated than owner-
60% occupier loans, given the greater prevalence
of interest-only periods that mean the loans
50% take longer to pay down.
– Rental income pressure is likely to be more
40% prevalent for investors, especially in inner-
city areas, and the movement of AirBNB
30% rentals into the longer-term residential
market.
20% – Exposure to CBD areas across the Australian
RMBS sector is limited at less than 2% of
10% total loan exposures.
0%
Investment Owner
Data as at June. 30, 2020. RMBS--Residential mortgage-backed securities.
Source: S&P Global Ratings.
11Australian RMBS Performance When are arrears likely to surface, given the insulation effect of mortgage payment deferrals?
COVID-19’s Effect On Prime Arrears
Unlikely To Be Visible Until At Least Q4
31-60 days 61-90 days 90+ days Standard variable rates (RHS)
1.8% 12%
1.6% Prime arrears peaked at 1.69%
after the 2008 financial crisis.
10%
1.4%
1.2% 8%
1.0%
6%
0.8%
0.6% 4%
0.4%
2%
0.2%
0.0% 0%
Source: Reserve Bank of Australia. S&P Global Ratings.
13Nonconforming Arrears Likely To Rise Earlier And
At A Faster Rate
31-60 days 61-90 days 90+ days Total current loan balance (RHS)
20% 12
Nonconforming arrears
10
peaked at 17.09% after the
2008 financial crisis.
15%
8
Bil. A$.
10% 6
4
5%
2
0% 0
Source: S&P Global Ratings.
14Mortgage Payment Deferral Levels
Aren’t An Indicator Of Future Arrears Performance
– Mortgage arrears are closely correlated with rises in unemployment because loss of
income is a key cause of mortgage default.
– COVID-19 arrangement levels provide some insight into debt-serviceability pressures but
are not an indicator of imminent mortgage default.
– Borrowers’ underlying credit quality is a driver of mortgage deferral utilization.
Operational considerations such as initial approaches to granting COVID-19 hardship
also play a part.
– Small bank (eg. Credit unions) and some nonbank lenders in the prime RMBS sector
generally have adopted a case-by-case approach to granting COVID-19 hardship, while
several larger bank lenders used a more automated deferral approach for the initial
assessment.
– The stage of economic recovery when support measures expire will affect the degree of
rises in mortgage arrears.
– COVID-19 levels for most publicly rated RMBS trust are available in the June pool
statistics.
15Prime Prepayment Rates Surprise On The Upside
Prime prepayment rate (Inc. Non-Capital Market Issuance)
– Prime prepayment rates including noncapital
Nonconforming prepayment rate
market issuance jumped to 30.2% in Q2 from
10-year long-term average prime prepayment rate 17.4% in Q1, mainly due to loan maintenance
Prime prepayment rate (Exc. Non-Capital Market Issuance) activity in bank internal self-securitization
programs.
40% – Prime prepayment rates excluding
noncapital market issuance rose to 20.8% in
35%
Q2 from 17.5% in Q1.
30% – Increases in prepayment rates (outside of
loan maintenance activity) reflect strong
25% refinancing activity in the first half of 2020.
20% – Nonconforming prepayment rates rose to
23.80% in Q2 from 22.03% in Q1.
15%
– We do not expect prepayment rates to
continue to increase at this rate. Most
10%
borrowers that were wanting and able to
refinance their loans have likely already done
5%
so.
0%
Data as at June. 30, 2020. Source: S&P Global Ratings.
16COVID-19’s Effect On Losses
Will Start To Emerge In Q2 2021
Property prices are likely to fall about 10% from the onset of the pandemic. Strong growth in property prices could return,
underpinned by increased demand when international borders reopen, low interest rates and potential supply shortages.
The modest LTV ratio profile of the Australian RMBS sector will help to minimize losses.
Cumulative Gross Loss By Vintage Of Cumulative Gross Loss By Vintage Of
Origination - Prime RMBS Origination - Nonconforming RMBS
0.09% 0.9%
0.08% 0.8%
0.07% 0.7%
0.06% 0.6%
0.05% 0.5%
0.04% 0.4%
0.03% 0.3%
0.02% 0.2%
0.01% 0.1%
0.00% 0.0%
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
RMBS--Residential mortgage-backed securities. Source: S&P Global Ratings. RMBS--Residential mortgage-backed securities. Source: S&P Global Ratings.
17These timelines are based on current time periods related to existing wage subsidy programs. Further extensions to these programs could alter the timeframes when
arrears and foreclosure periods are expected to occur.
18These timelines are based on current time periods related to existing wage subsidy programs. Further extensions to these programs could alter the timeframes when
arrears and foreclosure periods are expected to occur.
19Arrears Performance Nationwide Arrears will vary by state in line with their different paths to economic recovery
Reporting Nuances Mask COVID-19’s
True Effect On Arrears
Australia Arrears are likely to increase nationwide in the months
ahead as rising unemployment flows through to debt
serviceability pressures for some borrowers.
Enormous fiscal stimulus measures are
helping many borrowers whose income has been hit
by COVID-19. This will support household income
and aid debt serviceability.
Mortgage payment deferrals are masking COVID-19’s
true effect on arrears. This is because most lenders are
not including loans under COVID-19 hardship
arrangements in their traditional arrears reporting
during mortgage-relief periods.
Mortgage arrears are likely to exhibit greater variability
during mortgage-relief periods. This is partly due to
operational nuances in the approaches lenders adopt in
their reporting of loans that were in arrears before being
granted COVID-19 hardship arrangements.
0%-0.74% 0.75%-1.24% 1.25%-1.74% 1.75%-2.24% +2.25%
Map boundaries are based on the ABS SA4 geographical classifications. Some areas on the map have been merged graphically. Source: S&P Global Ratings.
21New South Wales: Containing COVID-19’s Spread
And Keeping The Economy Open 111
212
115 102
110 104
121
105 116 122
125
127
108 119
106 124
123 128
103
107
109
113
114
101
NSW has managed to keep its economy largely open and
stay on top of localized virus clusters. Managing this will
be crucial in keeping the economy open, preserving jobs,
and restoring the state’s strong arrears track record.
Current 30+ Peak 30+ Unemployment Exposure
Days Arrears Days Arrears Rate Across RMBS
1.33% 2.69% 7.2% 32%
0%-0.74% 0.75%-1.24% 1.25%-1.74% 1.75%-2.24% +2.25%
Source: Australian Bureau of Statistics. S&P Global Ratings.
22Victoria: Lockdown 2.0 Puts The Brakes On
Economic Recovery
Victoria’s Stage 4 lockdown will impede its
path to economic recovery, affecting
employment, housing markets, and debt
serviceability. A more protracted lockdown is
likely to lead to higher job losses and a greater 215
effect on property prices than in other parts of
the country. We expect more borrowers from 216
Victoria to request extensions to existing 202
204
mortgage deferral arrangements than in other
states, given the dislocation in economic
activity is likely to persist for some time. 201
Victoria is likely to see the largest increase in 205
214
mortgage arrears above pre-COVID-19 levels.
Current 30+ Peak 30+ Unemployment Exposure 203
Days Arrears Days Arrears Rate Across RMBS
1.37% 1.86% 6.8% 25%
210
209
211
213
0%-0.74% 0.75%-1.24% 1.25%-1.74% 1.75%-2.24% +2.25%
212
Source: Australian Bureau of Statistics. S&P Global Ratings. 214
23Queensland: Tourism Hotspots Have A Higher
Share Of COVID-19 Hardship Levels
Arrears were already more elevated
in Queensland than other parts of
316
the country, reflecting its exposure
313 to mining and drought-affected
regions. With the COVID-19
pandemic, tourism hot spots are
306 struggling from the closure of
international and some state
317 310 borders. Tourist towns have a
318 disproportionate share of loans
under COVID-19 hardship
312 arrangements and will likely see
309 higher arrears in the months ahead.
315 311
308
319
307
Current 30+ Peak 30+ Unemployment Exposure
Days Arrears Days Arrears Rate Across RMBS
1.58% 2.17% 8.8% 23%
0%-0.74% 0.75%-1.24% 1.25%-1.74% 1.75%-2.24% +2.25%
Source: Australian Bureau of Statistics. S&P Global Ratings.
24Western Australia: Longer-Dated Arrears Weighing
On Arrears Performance
Western Australia has been home to the
nation’s highest arrears for a number of
years, reflecting borrowers’ increased
505 debt-serviceability pressures since the
end of the mining boom. COVID-19’s
economic effect is unlikely to be as
504
508 negative as other parts of the country,
given its good progress on containing
503 the virus and the strong demand for
iron ore. Longer-dated arrears
meanwhile will still weigh on overall
507 506 arrears performance. These loans are
unlikely to cure.
509
502
507
Current Peak 30+ Peak 30+ Unemployment Exposure
Days Arrears Days Arrears Rate Across RMBS
2.67% 3.10% 8.3% 10%
0%-0.74% 0.75%-1.24% 1.25%-1.74% 1.75%-2.24% +2.25%
Source: Australian Bureau of Statistics. S&P Global Ratings.
25South Australia: Unemployment Eased In July
As Economic Recovery Continues
South Australia’s unemployment rate fell to 7.9% in July from
a month earlier but remained above the national average of
7.5%. The state has made progress in containing COVID-19’s
spread and reopening its economy. This will help with debt
serviceability when fiscal stimulus measures expire.
406
Current 30+ Peak 30+ Unemployment Exposure
Days Arrears Days Arrears Rate Across RMBS
1.36% 1.81% 7.9% 6%
405
407
402
404
401
403
0%-0.74% 0.75%-1.24% 1.25%-1.74% 1.75%-2.24% +2.25%
Source: Australian Bureau of Statistics. S&P Global Ratings.
26Tasmania: Unemployment Rate Lower Than
Most Other Parts Of the Country
Tasmania in July recorded one of the largest declines in
unemployment rate from the previous month. Its
current unemployment rate of 6% was well below the
604 602 national average of 7.5%. Tasmania has also made
good progress in containing the spread of the virus and
reopening its economy. This is likely to lead to less
pronounced increases in arrears in the months ahead
as the return to business as usual is more progressed.
603
601
Current 30+ Peak 30+ Unemployment Exposure
Days Arrears Days Arrears Rate Across RMBS
1.10% 2.02% 6.0% 2.0%
0%-0.74% 0.75%-1.24% 1.25%-1.74% 1.75%-2.24% +2.25%
Source: Australian Bureau of Statistics. S&P Global Ratings.
27The Territories: Northern Territory’s Unemployment
Rate Will Put More Pressure On Arrears
701
Northern Territory has the most volatile arrears
performance due to small exposures in portfolios. Darwin
has a disproportionate share of COVID-19 hardship
arrangements, reflecting the border closure’s effect on
the tourism sector. Unemployment in the territory was
7.5% in July, up from 5.7% in June.
702
Current 30+ Peak 30+ Unemployment Exposure
Days Arrears Days Arrears Rate Across RMBS
2.73% 3.50% 7.5% 1.0%
Australian Capital Territory has the lowest arrears, at
0.99%, as of June 30, 2020. This reflects its stronger
employment profile and lower unemployment.
0%-0.74% 0.75%-1.24% 1.25%-1.74% 1.75%-2.24% +2.25%
Source: Australian Bureau of Statistics. S&P Global Ratings.
28SA4 Listing Arrears And Exposure
30+ days 30+ days 30+ days 30+ days
Geographic arrears arrears Exposure Geographic arrears arrears Exposure
area map level level across area map level level across
code Regional name State June 2020 June 2019 RMBS code Regional name State June 2020 June 2019 RMBS
101 Capital Region NSW 1.09% 1.56% 1.23% 124 Sydney - Outer West and Blue Mountains NSW 1.45% 1.16% 0.94%
102 Central Coast NSW 1.31% 1.42% 1.51% 125 Sydney - Parramatta NSW 1.33% 1.35% 2.15%
103 Central West NSW 1.79% 1.71% 0.48% 126 Sydney - Ryde NSW 0.89% 0.50% 0.49%
104 Coffs Harbour - Grafton NSW 1.15% 1.18% 0.36% 127 Sydney - South West NSW 2.33% 2.23% 0.88%
105 Far West and Orana NSW 2.26% 2.90% 0.18% 128 Sydney - Sutherland NSW 1.24% 1.55% 0.79%
106 Hunter Valley exc Newcastle NSW 1.47% 1.42% 1.41% 201 Ballarat VIC 1.16% 1.39% 0.66%
107 Illawarra NSW 1.41% 1.33% 1.71% 202 Bendigo VIC 1.49% 1.72% 0.34%
108 Mid North Coast NSW 1.81% 1.79% 0.44% 203 Geelong VIC 0.82% 1.14% 1.11%
109 Murray NSW 1.04% 1.58% 0.70% 204 Hume VIC 2.09% 2.22% 0.31%
110 New England and North West NSW 1.46% 2.36% 0.23% 205 Latrobe - Gippsland VIC 1.64% 1.75% 0.60%
111 Newcastle and Lake Macquarie NSW 0.84% 0.98% 1.66% 206 Melbourne - Inner VIC 1.10% 0.94% 4.23%
112 Richmond - Tweed NSW 2.06% 1.90% 1.02% 207 Melbourne - Inner East VIC 1.22% 1.10% 1.73%
113 Riverina NSW 1.40% 1.48% 0.11% 208 Melbourne - Inner South VIC 0.95% 1.04% 2.16%
114 Southern Highlands and Shoalhaven NSW 2.52% 1.03% 0.26% 209 Melbourne - North East VIC 1.56% 1.78% 2.50%
115 Sydney - Baulkham Hills and Hawkesbury NSW 1.30% 1.29% 1.91% 210 Melbourne - North West VIC 2.09% 1.82% 1.29%
116 Sydney - Blacktown NSW 1.78% 1.54% 2.45% 211 Melbourne - Outer East VIC 1.04% 1.09% 2.43%
117 Sydney - City and Inner South NSW 0.82% 0.81% 2.92% 212 Melbourne - South East VIC 1.61% 1.77% 2.49%
118 Sydney - Eastern Suburbs NSW 0.85% 0.78% 0.87% 213 Melbourne - West VIC 1.80% 1.61% 2.63%
119 Sydney - Inner South West NSW 1.85% 1.76% 3.30% 214 Mornington Peninsula VIC 1.54% 1.76% 1.26%
120 Sydney - Inner West NSW 0.85% 0.63% 1.28% 215 North West VIC 1.29% 1.49% 0.12%
121 Sydney - North Sydney and Hornsby NSW 0.63% 0.61% 2.29% 216 Shepparton VIC 1.95% 2.22% 0.12%
122 Sydney - Northern Beaches NSW 0.87% 0.65% 1.48% 217 Warrnambool and South West VIC 1.50% 1.63% 0.22%
123 Sydney - Outer South West NSW 2.03% 1.31% 1.02% 301 Brisbane - East QLD 1.31% 1.38% 1.50%
29SA4 Listing Arrears And Exposure
30+ days 30+ days 30+ days 30+ days
Geographic arrears arrears Exposure Geographic arrears arrears Exposure
area map level level across area map level level across
code Regional name State June 2020 June 2019 RMBS code Regional name State June 2020 June 2019 RMBS
302 Brisbane - North QLD 1.03% 1.02% 2.06% 405 Barossa - Yorke - Mid North SA 2.04% 2.91% 0.16%
303 Brisbane - South QLD 1.13% 1.34% 2.86% 406 South Australia - Outback SA 1.38% 2.14% 0.13%
304 Brisbane - West QLD 1.00% 0.98% 1.32% 407 South Australia - South East SA 2.25% 1.80% 0.31%
305 Brisbane Inner City QLD 1.10% 1.06% 0.96% 501 Bunbury WA 2.66% 3.26% 0.46%
306 Cairns QLD 2.24% 2.09% 0.89% 502 Mandurah WA 3.65% 4.20% 0.32%
307 Darling Downs - Maranoa QLD 1.58% 2.28% 1.00% 503 Perth - Inner WA 1.28% 1.65% 1.04%
308 Fitzroy (Central Queensland) QLD 3.32% 3.77% 1.00% 504 Perth - North East WA 2.83% 2.97% 1.36%
309 Gold Coast QLD 1.40% 1.53% 3.14% 505 Perth - North West WA 2.74% 3.24% 2.09%
310 Ipswich QLD 2.04% 2.57% 1.24% 506 Perth - South East WA 2.87% 3.04% 2.16%
311 Logan - Beaudesert QLD 1.92% 2.78% 0.54% 507 Perth - South West WA 2.37% 2.74% 1.57%
312 Mackay QLD 2.60% 3.63% 0.80% 508 Western Australia - Outback WA 3.93% 5.18% 0.42%
313 Moreton Bay - North QLD 1.38% 2.14% 1.28% 509 Western Australia - Wheat Belt WA 4.08% 4.19% 0.18%
314 Moreton Bay - South QLD 0.96% 1.14% 0.64% 601 Hobart TAS 1.03% 1.16% 0.85%
315 Queensland - Outback QLD 3.39% 4.99% 0.17% 602 Launceston and North East TAS 1.26% 1.42% 0.35%
316 Sunshine Coast QLD 1.47% 1.65% 1.57% 603 South East TAS 2.66% 2.76% 0.03%
317 Toowoomba QLD 2.19% 3.29% 0.01% 604 West and North West TAS 0.94% 1.28% 0.23%
318 Townsville QLD 2.22% 3.18% 1.11% 701 Darwin NT 2.91% 3.05% 0.67%
319 Wide Bay QLD 2.11% 2.45% 0.62% 702 Northern Territory - Outback NT 1.64% 1.73% 0.09%
401 Adelaide - Central and Hills SA 1.09% 1.17% 1.43% 703 Northern Territory - Outback NT 0.00% 0.00% 0.00%
402 Adelaide - North SA 1.81% 1.99% 1.25% 704 Northern Territory - Outback NT 0.00% 0.00% 0.00%
403 Adelaide - South SA 1.11% 1.38% 1.33% 705 Northern Territory - Outback NT 0.00% 0.00% 0.00%
404 Adelaide - West SA 1.07% 1.05% 0.78%
30The 10 Worst-Performing Postcodes
State Suburb Postcode Loans in arrears Loan count
WA Byford 6122 6.28% 430
VIC Greenvale 3059 5.94% 390
WA Maddington 6109 5.92% 273
NT Darwin 800 5.36% 266
WA Blythewood 6208 5.34% 258
NSW Chester Hill 2162 4.91% 327
WA Cooloongup 6168 4.83% 583
WA Butler 6036 4.82% 371
WA Cloverdale 6105 4.69% 427
VIC South Melbourne 3205 4.68% 330
Source: S&P Global Ratings. Data as of June 30, 2020. For a full list of suburbs/localities attached to these postcodes, please refer to the Australia Post website.
31New Zealand
S&P Global Ratings Economic Outlook
2020f 2021f Outlook Impact on credit quality
Real GDP (5.0) 6.0 The country has outperformed nearly Negative. Reduced economic growth
growth (% year all others in containing COVID-19. The will likely add debt-serviceability
over year) lockdowns hurt economic activity in pressure for self-employed borrowers,
the June quarter, but the economy whose cash flows are more sensitive
should recover in the next few years. to deteriorating economic conditions.
Unemployment 5.8 5.6 We forecast unemployment to peak in Negative. Rising unemployment will
rate (year June, and economic activity and put pressure on certain cohorts,
average; %) employment to rebound in 2021. Job- including self-employed and highly
retention measures have helped to leveraged borrowers.
reduce the level of job losses.
CPI (%) 1.7 1.8 Wage growth is likely to remain Negative. Weak wage growth is likely
subdued in the wake of COVID-19. to persist for some time.
Policy rates, end 0.25 0.25 Official cash rate is set to remain low Positive. Lower rates will support debt
of year (%) for some time. serviceability for borrowers with
variable-rate mortgages.
f--Forecast.CPI --Consumer price index. Source: S&P Global Ratings.
33New Zealand’s Response To COVID-19 Has Helped
The Economy To Reopen Faster Than Others
– The COVID-19 pandemic and restrictions to contain it led to a sharp contraction in
economic activity in the June quarter of 2020. The emergence from lockdown resulted in
a rebound in economic activity in May and June.
– Many workers affected by the COVID-19 outbreak and containment measures have
mortgage deferral schemes and access to wage subsidies and superannuation balances
to compensate for lost income.
– Mortgage deferral schemes have been extended to March 2021. The regulatory guidance
means banks can continue to offer temporary mortgage deferrals to their customers
during mortgage relief periods without those loans being viewed as being in default,
– Lower interest rates are supporting house price recovery more so than business
investment at this stage.
– Auckland was placed under Stage 3 restrictions on August 11 after the detection of the
country’s first locally acquired case of COVID-19 in three months. Auckland is scheduled
to return to Stage 2 restrictions, as per the rest of the country, from August 31st.
34New Zealand RMBS Sector Performance
Remains Stable
– The credit quality of the New Zealand RMBS sector is strong, as evidenced by:
– Weighted-average LTV ratio of 60%.
– Average loan size of NZ$191,985.
– Weighted-average seasoning of 55 months.
– Low levels of arrears in most portfolios, though we expect arrears to rise
because of a forecast increase in unemployment.
– All losses to date have been fully covered by lenders’ mortgage insurance.
– A number of pools are now “small pools,” which have greater borrower
concentration risk.
RMBS--Residential mortgage-backed securities. LTV--Loan to value ratio.
35How To Access RMBS Performance Watch
RMBS Performance Watch including arrears, prepayment, and pool statistics data
can be accessed using the link below:
CLICK HERE
Asia-Pacific
Structured Finance
Surveillance
36RMBS Analytical Contacts
Kate Thomson
Analytical Manager | kate.thomson@spglobal.com
Narelle Coneybeare
Sector Lead | narelle.coneybeare@spglobal.com
Erin Kitson
Sector Specialist Research | erin.kitson@spglobal.com
Elizabeth Steenson
Lead Analyst | elizabeth.steenson@spglobal.com
Alisha Treacy
Lead Analyst | alisha.treacy@spglobal.com
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