Lessons from, and divergence in, New Zealand
Several of Australia’s largest nonbanks have significant New Zealand asset books. Lending and funding markets have similarities across the Tasman Sea, but they have also arguably diverged more than ever during the pandemic period.
RIEDEL The market is more strictly managed in New Zealand than it is in Australia. My feeling is New Zealand regulators see very little difference between a nonbank and a bank. Even if nonbanks do not have the strictest regulations, we feel their impact indirectly.
It is far more difficult to find pockets of customer support in New Zealand than it is in Australia. As a result, credit growth has been more challenging.
MARSDEN The New Zealand economy is far more concentrated, as is the New Zealand market, than Australia. Fundamentally, I do not necessarily agree with official intervention in markets I think the Reserve Bank of New Zealand (RBNZ) has been quite effective in dampening growth in the housing market.
Our New Zealand portfolio was our first to be fully remedied of COVID-19 related forbearance or hardship. This reflects the size and concentration of the portfolio but also its ability to change tack quite quickly. There will always be opportunities when we can be comfortable with where the business and economic cycle is heading.
ZILELI Prior to issuing this year, our last New Zealand dollar trade was in 2018 – so it has been quite some time for the follow up. We had a lot of demand in our new transaction and oversubscription across every tranche. Similar to the Australian dollar market, the mezzanine tranches were most in demand but we also had strong support in the triple-A notes.
This deal indicates the New Zealand dollar investor base is growing. The real question for us, though, is what it will look like next year – because we want to be a repeat issuer. COVID-19 delayed our new deal from last year but having had such a strong reception gives us more confidence to go back next year.
There were two other deals occurring at the same time and we were concerned it might be too much for the New Zealand market. Indeed, before we launched we were advised to wait because three deals might be too much. But it played out really well. We were in and out quite quickly while the positive demand and momentum even surprised some of the banks on the transaction.
The signs are good, but the New Zealand market needs more issuers for investors to invest in asset-backed securities (ABS) and residential mortgage-backed securities (RMBS) knowing there will be a constant supply rather than just the same few names every year.
Hopefully market development will continue. It is stronger than it was a few years ago and I hope to see a continuing upward trajectory.
What was different in the New Zealand credit-cards transaction compared with out Australian equivalents was the absence of offshore investor names. We do not have the same participation from European, Asian or US investors as we see in our Australian book.
Part of the reason for this is the smaller deal size and perceived lack of liquidity in New Zealand. This is a chicken-and-egg problem. We could go out with a NZ$500 million (US$356.1 million) deal to demonstrate there is liquidity for the offshore investors, but they might not show up. This is a dynamic we will need to navigate in future deals.
MARSDEN I think New Zealand is fundamentally a fertile fixed-income market but it is incumbent on more issuers – banks and nonbanks – to get out and really promote the RMBS and ABS products.