ING Australia May Sell Record $2.1 Billion in Mortgage Bonds
ING Groep NV (INGA)’s Australian unit may sell as much as A$2 billion ($2.05 billion) in bonds backed by home loans this year, the most since it began issuing the securities in 2010.
ING Bank (Australia) Ltd., the Dutch financial firm’s only online banking unit outside Europe, will raise the cash through two offerings to fund loans in the A$1.1 trillion home mortgage market, Chief Executive Officer Vaughn Richtor said.
Australia’s fifth-largest home lender, which trades under the ING Direct brand in the country, is turning to mortgage- backed securities to diversify away from deposits and wholesale funding. Costs for the bonds have dropped to the lowest since the global financial crisis as investors favor higher-yielding assets amid the lowest financial debt spreads in more than four years.
“For a bank that is focused on mortgages like us, it is a way of diversifying our funding,” Richtor, 57, said in an interview in Sydney yesterday. “We would hope to do a couple of issues this year between A$500 million to A$1 billion each.”
ING Bank Australia’s deposits now make up the largest proportion of its funding. The lender has A$26 billion in deposits, according to data on its website.
The bank has raised A$4.25 billion from mortgage-backed bonds since October 2010, according to data compiled by Bloomberg. It issued A$1.8 billion of the securities in 2012, the most in a calendar year.
Commonwealth Bank of Australia, the nation’s largest lender, today priced the biggest tranche of its almost A$2.54 billion sale of mortgage bonds at 80 basis points more than the bank bill swap rate, according to data compiled by Bloomberg. That’s the tightest spread on similar-maturity RMBS since November 2007, the data show.
Banks are mixing their funding sources and tenure after the global financial crisis choked the wholesale term debt market. The top Australian banks’ reliance on wholesale funding markets has fallen to 40 percent from more than half three years ago as households save at close to the highest rate in a quarter century, Reserve Bank of Australia data show.
“You also want diversity in maturity of funding,” Richtor said. Mortgage-backed securities tend to carry a three- to five- year tenure, while most term deposits mature in three to 12 months, according to central bank figures.
The increase in savings has reduced demand for mortgages, with home loans outstanding expanding at the weakest pace since 1977 in December, central bank data show. Home-loan approvals fell in December for a third month and the proportion of first- home buyers slumped to the lowest in more than eight years, the country’s statistics bureau said on Feb. 11.
“There isn’t any sign of a pickup,” Richtor said. “Mortgage demand will continue to remain weak. Since the financial crisis people are being a lot more conservative.”
Richtor started the Australian online bank in 1999 and remained with it till 2006. He returned to the role last year after stints abroad including as head of ING’s banking operations in Asia.
ING is selling assets after receiving a 10 billion-euro ($13.3 billion) bailout by the Dutch state in 2008 following a plunge in the value of subprime mortgages held by its U.S. unit. It sold its U.S. online bank in 2011 and offloaded its Canadian and U.K. units last year. Besides Australia, it now has Internet banks in France, Germany, Italy and Spain.
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