Current Unit Price: (20 min. delayed price) ASX:MXT $2.05 -0.97%
NAV as at COB: 21.01.20 $2.0089
Current Unit Price: (20 min. delayed price) ASX:MOT $2.06 0.00%
NAV as at COB: 21.01.20 $2.0159

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Property sector and investors both benefitting from transformation of banking post-Hayne

Property Finance

Australia’s banking sector is transforming due to myriad factors, ranging from global changes through to the Hayne Royal Commission, and this is creating opportunities for both borrowers and investors.

While lending from the traditional big banks has tightened in recent years, the growth of non-bank lenders means that capital is still readily available. Similarly, by investing in direct lending funds, investors are benefiting from improved returns compared with banks cash and term deposit rates.

Both borrowers and investors have to recognise these changes and how to tap them, suggests Metrics Credit Partners (Metrics). 

While non-bank lending has developed to the point where it is directly competing with traditional bank lending, it is also complementing it, with non-banks lending alongside the major banks for the same loans,” notes Andrew Lockhart, Managing Partner of Metrics. “From a borrower perspective, there can be many benefits to working with non-bank lenders. Because these lenders also need to raise capital, they need to keep loss rates low and returns consistent and will often align with borrowers to work through tough situations. This is in contrast to larger banks, which typically follow a set process with less room to move.”

Mr Lockhart said several property and private equity deals would not have been done without non-bank lenders. For example, on property deals banks often finance the senior land acquisition, with non-banks often financing the mezzanine debt in addition to senior debt.

Banks have been retreating from private debt markets since the global financial crisis forced them to repair their balance sheets and, more recently, Basel III mandated stronger capital adequacy obligations. As a result, Australia’s non-bank lenders are slowly following the US and UK and taking in a larger slice of the loan market.

 

Higher returns for investors

He said: “The growth in the non-bank lending market is opening up opportunities for investors to garner improved returns.

“From a return perspective, investing in a diversified portfolio of corporate loans enables investors to earn 3 to 5% above the Reserve Bank rate – which is much needed in a low interest rate environment.”

 

Secure investments in uncertain times

Mr Lockhart added: “In addition to strong return potential, Australia’s corporate insolvency laws are probably one of the most underappreciated benefits of the local corporate loan market, providing greater security of capital for investors.

“Australian legislation governing corporate insolvency provides investors with protections, as lenders rank highest in the pecking order in terms of the capital structure of a company, above equity holders.”

If a company were to get into difficulty, the lender could ask the borrower to try to raise additional equity and use the proceeds to pay part of the outstanding debt. If the borrower was unable to raise additional equity, the lender could then force an asset sales process to recoup funds. Secured creditors in Australia have effective security over companies they lend to, meaning they can take control over the company or property they have security over, and look to either sell that asset or restructure the debt, for example by converting it to part debt/ part equity.

Corporate loan loss rates in Australia are low, averaging 0.32%over the past 10 years.

Investing in a diversified portfolio rather than lending directly to a few select corporates, can further limit downside risks by spreading investors’ capital across a range of sectors, risk profiles and loan terms.

“The transformation of Australia’s banking sector and its burgeoning corporate loan market will continue to present opportunities for investors seeking more certain investment opportunities in an increasingly uncertain market,” Mr Lockhart said.

Online by Andrew Lockhart

Current Unit Price: (20 min. delayed price) ASX:MXT $2.05 -0.97%
NAV as at COB: 21.01.20 $2.0089
Current Unit Price: (20 min. delayed price) ASX:MOT $2.06 0.00%
NAV as at COB: 21.01.20 $2.0159

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All website content in respect of the MCP Master Income Trust ARSN 620 465 090 (the Trust) is issued by The Trust Company (RE Services) Limited ABN 45 003 278 831 AFSL 235 150 (Perpetual) as responsible entity of the Trust and is prepared by Metrics Credit Partners Pty Ltd ABN 27 150 646 996 AFSL 416 146 (Metrics) as the investment manager of the Trust.

The information provided in this website is of a general nature only and has been prepared without taking into account your objectives, financial situation or needs. Before making an investment decision in respect of the Trust, you should consider the current product disclosure statement (PDS) of the Trust and the Trust’s other periodic and continuous disclosure announcements lodged with the ASX, which are available at www.asx.com.au/, and assess whether the Trust is appropriate given your objectives, financial situation or needs. If you require advice that takes into account your personal circumstances, you should consult a licensed or authorised financial adviser.

Neither Perpetual nor Metrics guarantees repayment of capital or any particular rate of return from the Trust. Neither Perpetual nor Metrics gives any representation or warranty as to the currency, reliability, completeness or accuracy of the information contained in this website. All opinions and estimates included in this website constitute judgments of Metrics as at the date of website creation and are subject to change without notice. Past performance is not a reliable indicator of future performance.

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The Zenith Investment Partners (ABN 27 103 132 672, AFS Licence 226872) (“Zenith”) rating (assigned May/2019) referred to in this document is limited to “General Advice” (s766B Corporations Act 2001) for Wholesale clients only. This advice has been prepared without taking into account the objectives, financial situation or needs of any individual and is subject to change at any time without prior notice. It is not a specific recommendation to purchase, sell or hold the relevant product(s). Investors should seek independent financial advice before making an investment decision and should consider the appropriateness of this advice in light of their own objectives, financial situation and needs. Investors should obtain a copy of, and consider the PDS or offer document before making any decision and refer to the full Zenith Product Assessment available on the Zenith website. Past performance is not an indication of future performance. Zenith usually charges the product issuer, fund manager or related party to conduct Product Assessments. Full details regarding Zenith’s methodology, ratings definitions and regulatory compliance are available on our Product Assessments and at http://www.zenithpartners.com.au/RegulatoryGuidelines

Disclaimer and disclosure

All website content in respect of the MCP Income Opportunities Trust ARSN 631 320 628 (the Trust) is issued by The Trust Company (RE Services) Limited ABN 45 003 278 831 AFSL 235 150 (Perpetual) as responsible entity of the Trust and is prepared by Metrics Credit Partners Pty Ltd ABN 27 150 646 996 AFSL 416 146 (Metrics) as the investment manager of the Trust.

The information provided in this website is of a general nature only and has been prepared without taking into account your objectives, financial situation or needs. Before making an investment decision in respect of the Trust, you should consider the current product disclosure statement (PDS) of the Trust, and the Trust’s other periodic and continuous disclosure announcements lodged with the ASX, which are available at www.asx.com.au, and assess whether the Trust is appropriate given your objectives, financial situation or needs. If you require advice that takes into account your personal circumstances, you should consult a licensed or authorised financial adviser.

Neither Perpetual nor Metrics guarantees repayment of capital or any particular rate of return from the Trust. Neither Perpetual nor Metrics gives any representation or warranty as to the currency, reliability, completeness or accuracy of the information contained in this website. All opinions and estimates included in this website constitute judgments of Metrics as at the date of website creation and are subject to change without notice. Past performance is not a reliable indicator of future performance.

Cororate Governance
Personal Trading in Non-Perpetual Securities | RE Services Personal Trading in Non-Perpetual Securities | Unitholders Communications Policy | Continuous Disclosure Policy

The Zenith Investment Partners (ABN 27 103 132 672, AFS Licence 226872) (“Zenith”) rating (assigned May/2019) referred to in this document is limited to “General Advice” (s766B Corporations Act 2001) for Wholesale clients only. This advice has been prepared without taking into account the objectives, financial situation or needs of any individual and is subject to change at any time without prior notice. It is not a specific recommendation to purchase, sell or hold the relevant product(s). Investors should seek independent financial advice before making an investment decision and should consider the appropriateness of this advice in light of their own objectives, financial situation and needs. Investors should obtain a copy of, and consider the PDS or offer document before making any decision and refer to the full Zenith Product Assessment available on the Zenith website. Past performance is not an indication of future performance. Zenith usually charges the product issuer, fund manager or related party to conduct Product Assessments. Full details regarding Zenith’s methodology, ratings definitions and regulatory compliance are available on our Product Assessments and at http://www.zenithpartners.com.au/RegulatoryGuidelines

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