Mutual ADIs position for the future

The second annual KangaNews Mutual Sector Wholesale Funding Seminar took place in Sydney on 25 February. Discussions covered the sector’s performance and competitive position, access to wholesale funding markets, the potential for additional-capital issuance and how mutuals can incorporate technology to add efficiency in the treasury function.

"The bushfire crisis eliminated the federal government’s idea of balancing the budget and winding down government debt at all costs, and now with the coronavirus it will not blink twice about providing fiscal stimulus to industries affected. The government will go further down the fiscal track – it would be very unusual if it did not."

Today’s digital platforms manage data and reporting that would support a multiseller securitisation programme more efficiently and effectively than ever.

"Issuers can gain many benefits from participating in multiseller deals – from geographic diversity and scale to more frequent issuance. The large mutuals, and some smaller ones, all have the technology in place for multiseller securitisation."

If smaller tickets come frequently, we can spend more time getting involved with and backing a securitisation programme. But if we look at a deal only every five years – when we have already been paid back – we have to get back up to speed with the programme and the business. There is much benefit from issuing frequently.

"We generally classify mutuals as nonbank financial institutions and the arrears and loss performance for this cohort is consistently below that of other classifications. It has a lot to do with the characteristics and attributes of the loans written, because mutuals have high-quality residential mortgage loan books."

"Mutuals’ experiences with securitisation have ranged from warehouses to full issuance. Many mutuals have also looked at repo-eligible transactions. Much of the basic framework is relevant if a mutual is looking to the ultimate stage of public securitisation."

"We went from green bonds to social bonds to sustainability bonds in the labelled framework. Now we are moving to impact investing and looking at what an issuer is doing as a whole, such as its progress on reducing carbon emissions against certain benchmarks."

"We don’t get a pricing benefit for our ethical debt issuance though it may come in the future. We undertook RIAA certification for other benefits: to build market experience, pioneer ethical investment free of fossil fuels, increase diversity, bring in ethical investors and showcase how ethical practice underpins the mutual-bank model."

"Issuing sustainability bonds is an effective way to communicate Bank Australia’s purpose to investors, and it enables us to talk about the impact assets we have on our books and the portfolio we are building. By linking these assets to a sustainability bond, we can talk to investors in detail and tell them our story."

Technology is a big part of the resources we would need to manage a larger amount of money effectively. It allows analysts to do what they are good at – which is analysing data, not scrubbing it.

"We are coming to a point where core technologies within cloud platforms can support specific processes mutuals would benefit from, including credit risk, stress testing of portfolios, efficient deal execution and the ability to achieve scale through technology."

"It is well known that legacy systems weigh down established banks. They also have legacy ESG systems that act as a drag. As a neobank, we have an opportunity to build ESG into our business model from day one."

We can stay ahead and keep costs down because we started from scratch with no legacy systems. The technology we use is scalable and malleable, which makes it easy to get reports when we want them.