Judo Bank is set to embrace programmatic securitisation after pricing Australia’s first big ticket funding program backed by a mix of SME-related loans, mortgages and credit lines that qualifies for regulatory capital relief.
In a filing to the ASX, Judo said that it had successfully priced a securitisation program to raise A$500 million that would directly enhance the bank’s common equity tier one capital ratio.
Chief financial officer Andrew Leslie said that the bank had originally been seeking $350 million, but upsized the offer following strong support from investors.
“We are very pleased with the strong support we have received for this transaction from a broad range of domestic and international investors, resulting in us upsizing from an initial launch amount of $350m to $500m,” Leslie said.
"While term deposits remain our primary source of funding, this inaugural transaction demonstrates the strength and sophistication of our treasury capability in wholesale markets.
“This transaction bolsters the diversity and surety of our funding, as well as strengthening our capital position, and in doing so supports our continued growth in lending to the SME economy."
The transaction, which is due to complete on 21 September, breaks new ground in Australia because all of the pooled assets are linked to business borrowers of the bank.
“The assets are SME-focused, which makes the investment structure unique for the Australian market,” Leslie told Banking Day.
“Demand across all parts of the program has been strong and that’s important for it to qualify as a capital-relief structure.
“We’ve had a spread of interest from both domestic and offshore investors.”
Judo priced the $372 million in Aaa-rated A notes at a spread of 170 basis points to one-month BBSW, the $33 million in AA-rated B notes at a spread of 320 bps and the $22 million in A2-rated C notes at spread of 380 bps. The D, E, F and G notes priced in a range from 460bps to 900 bps.
Judo is now planning to tap the securitisation market more regularly as a funding source.
The bank’s share price has lost ground in recent weeks following the release of its full year results on 24 August.
While the 2023 financial performance exceeded guidance targets, analysts have raised concerns about the company’s ability to maintain lending margins.
The bank’s ASX-listed stock closed steady at $1 on Wednesday.
The share price has more than halved since the company was floated in November 2021.