There has been a significant recalibration of competitive forces in Australia’s A$360 billion (US$262.2 billion) annual residential-mortgage market in recent years, with nonbank market share growing as banks skew towards a more vanilla customer base due to regulatory changes.

Further policy and process adjustments during COVID-19 market disruption have resulted in bank loan-approval turnaround times elongating. This was particularly evident through the March-June period in which several bank and nonbank lenders with offshored loan processing struggled to turn around applications in a timely manner as those overseas jurisdictions imposed lockdowns on offshored business operations.

La Trobe Financial is 100 per cent onshore and headquartered in Melbourne, with 150 dedicated mortgage underwriters. The company has seen more than A$3 billion of net-asset growth across all aspects of its business in the last year without major changes to credit parameters or relative pricing.

Of course, we applied a COVID-19 underwriting overlay in March. But, due to our A$5 billion funding diversity, we were able to remain open for business uninterrupted as other lenders withdrew or reduced their profile. This, coupled with our high service level, enabled the business to capture growth opportunity while at the same time managing the group’s risk profile.

Over the past five years, our book quality has markedly improved with specialist loans as a percentage of La Trobe Financial’s overall AUM decreasing to 9 per cent in favour of growth in prime and super-prime assets, which constitute roughly 40 per cent. We expect this trend to amplify as a consequence of the COVID-19 disruption as other lenders focus on hyper-rate-sensitive borrowers.

Overall, our asset quality remains robust with our portfolios comprising granular diversified loans written at low loan-to-value ratios that average 68 per cent and have a maximum of 80 per cent.

We have always maintained roughly 12 months of forward funding capacity and a minimum of A$50 million free capital on any given day. This framework has served us well over 68 years of operation including the shock of COVID-19 lockdowns and economic retraction.

We had a conservative and strong balance sheet and were able to weather the storm without a pressing funding need. In addition, our large and strong bank panel was very supportive with no interruption to limits.

Even so, we took the view it was prudent and conservative to proceed with a capital raising in late April further to bolster our already-strong group liquidity profile. We were able to proceed with a digital roadshow for investors and a A$1.25 billion residential mortgage-backed securities deal, which was oversubscribed and priced on 12 May. Notably, this transaction had no primary-market support from the Australian government.

Today, the group has A$457 million of shock-absorber and regulatory capital, making La Trobe Financial one of the strongest nonbanks in Australia.

La Trobe Financial’s A$5 billion retail credit fund has been a key component of the group’s funding strategy for more than three decades. The initial strategy was to deliver a diversified funding base for the business to the benefit of all our investors. Today, the fund comprises around half our AUM and makes the business dramatically more resilient to the funding shocks that periodically disrupt financial markets.

Just as importantly, the credit fund is a very flexible funding source. Its 47,000 registered investors allocate to residential, commercial, and construction and development loans across Australia. Our broad product set is a key point of difference for our broking and borrowing partners and ensures a continued flow of high-quality assets into the business.

The COVID-19 period has had relatively little impact on credit-fund operations. Its investor base has a longstanding relationship with La Trobe Financial and we have invested for many years in building market-leading transparency into our offering.

We did see an increase in redemption activity in March and April as investors drew down to meet their other commitments, such as supporting their own businesses. But by May we had returned to solid organic AUM net growth and this has continued since.