Description of Graphs for Speech by Ric Battellino, Assistant Governor (Financial Markets)
‘Some Comments on Securitisation’
28 July 2004
Graph 1: The Australian Domestic Bond Market
This graph has four panels showing Australian domestic market bonds outstanding issued by financial institutions, non-financial corporates, asset-backed vehicles and non-resident borrowers from 1990 to June 2004. Since 1997, outstandings of asset-backed bonds have grown from $12 billion to $65 billion, while the other three sectors have all grown from less than $5 billion to around $30 billion.
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Graph 2: Asset-backed Securities Outstanding
This area graph shows the value of Australian entities’ outstanding asset-backed bonds from 1991 to June 2004. Over recent years, offshore asset-backed bonds have grown more rapidly than domestic bonds: since 1997, offshore outstandings have increased from $1 billion to $62 billion, compared with growth from $12 billion to $64 billion for the domestic market.
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Graph 3: Issues of Asset-backed Securities in 2003
This stacked column graph shows asset-backed securities issuance by country for 2003. The US is by far the biggest issuer, with US$585 billion, of which US$480 billion is residential mortgage-backed securities (RMBS). Next in line are the UK (at about US$85 billion), Spain, Italy and then Australia (at about US$25 billion). Germany appears to have issued very few asset-backed securities because the graph excludes bonds (such as Pfandbrief) that are backed by assets that remain on the originators’ balance sheets.
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Graph 4: Growth in Housing Finance
This graph has two lines that show the growth rates of securitised housing loans and of housing loans held on financial intermediaries’ balance sheets from 1999 to mid 2004. Growth in the value of securitised housing loans has averaged over 30 per cent per annum over the past five years, twice the average growth rate of on-balance sheet loans.
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Graph 5: Securitised Housing Loans
The graph has a line showing the proportion of total housing loans that have been securitised between 1990 and mid 2004. It shows that the proportion has increased steadily since the mid 1990s, from under 5 per cent to almost 20 per cent.
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Graph 6: Issuers of Mortgage-backed Securities
This stacked column graph shows the value of annual issuance of RMBS split by type of lender: mortgage originator, non-bank financial intermediaries (building societies and credit unions), regional banks and major banks for each year from 2000. Annual issuance has increased from less than $20 billion in 2000, to an annualised rate of almost $70 billion in the first half of 2004. Mortgage originators account for more than half of the issuance in each year (an annualised $40 billion in 2004), while regional banks have issued more than the major banks in each of the past three years.
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Graph 7: Cost of Funding Residential Mortgages
This stacked column chart compares the cost to a financial intermediary, in basis points, of securitising a housing loan with that of keeping the same loan on its balance sheet and funding it by issuing a non-asset-backed bond. In total, securitisation is estimated to cost almost 40 basis points more than the bank bill rate, slightly more than the major banks’ on-balance sheet funding cost, but about 20 basis points lower than the regional banks’ funding cost.
The on-balance sheet funding cost comprises three parts: the spread between the interest rate on the bonds used to fund the loan and the bank bill rate; the deal costs; and the cost of holding regulatory capital. Spreads on asset-backed bonds are about 10 basis points higher than those on non-asset-backed bonds issued by major banks, and 10 basis points lower than those on regional banks’ bonds. Deal costs are lower for non-asset-backed bonds than for asset-backed bonds, but the cost of holding regulatory capital against on-balance sheet loans more than offsets this saving.
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Graph 8: Buyers of Asset-backed Securities
This graph shows estimates of the proportions of asset-backed bonds that are held by different types of investor – foreigners, pension funds and insurance companies (PFICs), authorised deposit takers (ADIs), conduits and other – between 1995 and mid 2004. Foreigners currently hold about 55 per cent of asset-backed bonds issued by Australian entities, compared with around 40 per cent in 1995. The proportion of bonds held by PFICs has declined from 30 per cent to 15 per cent; while ADIs’ and conduits’ holdings have oscillated between 10 per cent and 20 per cent of bonds.
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Graph 9: Currency Composition of Mortgage-backed Securities
This stacked column graph shows the value of annual issuance of RMBS split by currency for each year since 2000. In the early years, issuance was equally split between US dollars and Australian dollars. Euro-denominated bonds have been issued since 2002, but their value was relatively small until 2004 when Euro issuance matched that in US and Australian dollars. In 2004, there was also a small amount of issuance in pounds sterling.
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Graph 10: Ratings Composition of Mortgage-backed Securities
This stacked column graph shows the annual issuance of RMBS split by credit rating for each year since 2000. In each year, more than 95 per cent of bonds were AAA-rated. Only a small fraction of bonds have lower ratings: in the early years these were mostly AA-rated bonds, but more recently there has been some A-rated and lower rated issuance. In the first half of 2004, $2½ billion (annualised) of $70 billion (annualised) was non-AAA-rated issuance.
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Graph 11: Loan Arrears on Residential Mortgages
This graph has two lines showing the percentage of prime mortgage loans that are over 30 days in arrears in the US and in Australia between 1995 and 2004. In the US, the proportion averaged 2¼ per cent until 2003 when it declined to close to 1½ per cent. In Australia, the proportion of securitised prime loans that is in arrears has shown no discernible trend and has averaged around ¾ per cent.
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Graph 12: Spreads on Issues of Mortgage-backed Securities
This scatter graph shows the average spread above the bank bill rate on issues of prime RMBS in each month from 2000 to June 2004. The diamonds represent spreads on AAA-rated tranches, and the circles represent spreads on AA-rated tranches. Spreads on AAA-rated tranches have been fairly stable at around 35 basis points over the period, although they have declined slightly in 2004. Spreads on AA-rated tranches have been more variable, declining from 75 to 55 basis points in 2000, but then increasing to around 80 basis points in late 2003. In 2004, they have declined to around 60 basis points.
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Graph 13: Borrowings of Private Non-financial Corporates and Households
This stacked column graph shows the composition of the borrowings of non-financial corporates and households as a percentage of GDP in 1980, 1990 and 2004. In 1980, non-financial corporates’ and households’ total debt was slightly over 54 per cent of GDP, of which 4 per cent of GDP was in the form of bonds (termed ‘non-intermediated’ in the graph); the remainder was held on the balance sheets of financial intermediaries. In 1990, total debt had increased to 95 per cent of GDP, of which 8 per cent of GDP was non-intermediated. By 2004, non-intermediated debt accounted for one-fifth of borrowings: 30 per cent of GDP out of a total debt of 147 per cent of GDP.
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Graph 14: Issues of Mortgage-backed Securities by Type of Mortgage
This stacked column graph shows the value of annual issuance of RMBS split by type of mortgage. In 2000 and 2001, almost all securitisation was of prime mortgages. Non-conforming lenders started issuing noticeable amounts from 2002 ($3½ billion annualised in 2004), while 100 per cent low documentation issues have taken off only in 2004 ($7 billion annualised).
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Graph 15: Private Non-financial Debt Outstanding
This stacked column graph shows an international ranking of non-financial corporates’ and households’ debt as a percentage of GDP in 2003. The Netherlands is the most heavily indebted with total debt of around 180 per cent GDP. The aggregate debt to GDP ratio of households and financial corporates in the UK, US and Australia is around 150 per cent of GDP. The other countries – Spain, Germany, Japan, France and Italy – have ratios ranging from 135 per cent to 100 per cent of GDP.
Around 60 per cent of US debt is in non-intermediated forms (i.e. not on financial intermediaries' balance sheets). In most other countries, the proportion is between 10 per cent and 25 per cent. Australia, at 20 per cent, has a slightly higher than average proportion. Germany has the lowest proportion at 5 per cent.
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