SYDNEY (Reuters) – Australia’s central bank said on Monday risks to non-bank lenders in securitization were limited as the labor market remained resilient, supporting households and businesses, and the size of the sector remained small overall.
Speaking in Sydney on Monday, David Jacobs, head of domestic markets at the Reserve Bank of Australia, said that while there was potential for increased risk in the securitization market, there were limited signs of tension for now.
“The key point I want to reiterate is that the risks from non-bank lenders are currently somewhat limited by the small size of the sector, limited linkages to the rest of the financial system and their funding mostly coming from sophisticated investors,” Jacobs said.
For example, default rates for residential mortgage-backed securities (RMBS) were similar to those for bank-backed mortgages, he said, adding that it was not apparent that the relative risks of RMBS had changed significantly.
The RBA has kept interest rates at a 12-year high of 4.35% all year, but the labor market has remained surprisingly strong, which is why markets haven’t fully priced in a rate cut until May next year.
Mortgage arrears were rising but were at historically low levels, the RBA said, adding that only a small proportion of outstanding loans were in negative equity and the financial system remained resilient.
