ING Australia Targets Deposit Growth to Limit Reliance on RMBS

ING Groep NV’s Australian unit wants to increase deposit funding and limit its reliance on mortgage-backed bond issuance even as costs slide to protect itself from market fluctuations, the lender’s country head said.

ING Bank (Australia) Ltd., the Dutch financial firm’s only online banking unit outside Europe, plans to take the share of deposits to 80 percent of its funding requirement from 76 percent and target growth from transaction accounts and pension deposits, Chief Executive Officer Vaughn Richtor said in an interview yesterday. ING will raise about A$2 billion ($1.9 billion) from mortgage-backed bonds this year, similar to 2013’s levels, he said.

“We don’t want to be a one-trick pony that you end up being caught,” Richtor said. “We need to have the right funding mix.”

Australia’s fifth-largest housing lender with A$38 billion of home loans, ING is resisting the urge to increase its reliance on residential mortgage-backed securities even as costs for some borrowers fall to the lowest levels since the global crisis. ING was the biggest seller of public RMBS in Australia last year after Commonwealth Bank of Australia and Westpac Banking Corp., according to data compiled by Bloomberg.

Cheaper funding costs are helping smaller lenders arrest five years of market-share loss to the four pillar banks, named after a law that prevents mergers between them. The share of all outstanding mortgages of Australia’s biggest banks -- CBA, Westpac, Australia & New Zealand Banking Group Ltd. and National Australia Bank Ltd. -- dropped to 84.3 percent in the year to Feb. 28 from 85.1 percent 12 months earlier, according to Australian Prudential Regulation Authority data.

Funding Cost

The market for mortgage bonds strengthened last year, with Australian issuers selling A$26.1 billion of RMBS, the most since 2007, according to data compiled by Bloomberg.

Second-tier banks are now also paying less to sell the collateral-backed notes. AMP Bank Ltd. last month paid the least for top-rated mortgage-backed securities since March 2007, issuing A$920 million of notes at a yield 95 basis points above the bank bill swap rate, data compiled by Bloomberg show.

ING has about A$30 billion in deposits and has increased the share of total funding it gets from them from about 55 percent before the global crisis, Richtor said. The lender, which previously received most of its deposits from savings accounts, has now diversified into retail term money, corporate funds and deposits through its pension products, he said.

Australian banks currently meet about 57 percent of their funding needs through domestic deposits, compared with about 40 percent in 2008, the Reserve Bank of Australia said in its semiannual financial stability review on March. 26.

“Now that we are a certain size we need to ensure we stay balanced,” said Richtor, who started the Australian online bank in 1999 and returned to helm in 2012 after stints abroad. “We look at our balance sheet on both the liability and asset side and look to match the funding profile.”

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