Australia’s Bendigo & Adelaide Plans Up to A$750 Million RMBS

Australian regional lender Bendigo & Adelaide Bank Ltd. is planning a mortgage-bond deal of as much as A$750 million ($672 million) later this year following a A$500 million offering this week.

The lender, which issued A$1.35 billion of residential mortgage-backed securities last year after a hiatus in 2012, priced A$500 million of the home-loan linked notes on Feb. 25 and has also been active in unsecured markets in 2014. While the bank is active in the wholesale funding market, deposits make up 78 percent of total funding, against a stated target of 75 percent to 80 percent, Chief Executive Officer Mike Hirst said in a phone interview yesterday.

Bendigo & Adelaide’s mortgage-bond sales coincided with a revival in home prices and the market for securitization, which prompted the government to end a RMBS support program put in place following the global credit freeze that started in 2008. The bank priced A$460 million of top-class notes in this week’s transaction at 90 basis points more than the bank bill swap rate, a spread 5 basis points narrower than its previous deal in June.

“We’ve got another one slotted in for later this calendar year,” Hirst said. “The size of our deals will probably be around that A$500 million to A$750 million mark, I don’t think we’d be looking to do anything much larger than that.”

Bendigo’s latest offering followed a A$1.4 billion RMBS deal this month from Macquarie Group Ltd. and a A$2.5 billion issue from Commonwealth Bank of Australia, the country’s biggest lender. New RMBS offerings in Australia almost doubled to A$26.1 billion last year.

Increased Issuance

While the Australian securitization market has recovered, Bendigo & Adelaide has reduced its reliance on RMBS in favor of deposits, Hirst said.

“Term deposits at the moment are pretty good,” he said. “The pricing on those has been coming down as banks have focused a little bit more on the asset side of competition than the deposit side. That’s beneficial for us because we have so many retail deposits.”

Special interest rates used to attract term deposits from customers held at 3.7 percent last month, matching the lowest level in Reserve Bank of Australia data compiled since 2002.

Bendigo’s net interest margin, a key measure of lending profitability, rose by four basis points in the six months to Dec. 31 from the preceding six months, according to its earnings announcement Feb. 17. That compares with a contraction of 3 basis points for Commonwealth Bank in the same period.

The lender carries a credit score of A- at Standard & Poor’s, the seventh highest rating, and is ranked one level higher by Moody’s at A2.

Swiss Issuance

Bendigo also issued its first-ever bond in Switzerland this week after investors offshore expressed interest in buying the credit, according to Hirst. It sold 125 million Swiss francs ($141 million) of five-year notes to yield 65 basis points more than the swap rate, according to data compiled by Bloomberg.

The bank has issued A$425 million of unsecuritized bonds in its home market so far in 2014, including a A$300 million subordinated debt transaction. The 10-year floating-rate securities, which qualify as Tier 2 Capital under prudential regulations, were priced at 280 basis points more than the bank bill swap rate.

While the RBA’s decision to lower its benchmark to 2.5 percent has helped support confidence in Australia’s mortgage lenders and pushed home prices to record highs, Hirst said he does not think the housing market is overvalued.

“By and large I think it’s going along at a reasonable rate,” he said. “I’m not concerned about valuations per se. There’s still probably under supply.”

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