RMBS Performance Watch: Australia - Market Overview

As of Dec. 31, 2020 Australian Macroeconomic Environment Vaccination rollouts boost recovery momentum

S&P Global Ratings Economic Outlook: Australia

2021f 2022f Outlook Effect on credit quality

Real GDP 4.0 3.2 Recovery momentum continues, with Improving. Economic growth is forecast (% year GDP growth forecast to reach 4.0% in recovering as businesses reopen. This over year) 2021. will help ease the transition of stimulus measures and mortgage- relief periods.

Unemployment 6.5 6.0 Job growth recovery continues apace Negative but improving. rate (year with the reopening of the economy. We Unemployment rate is declining as average; %) do not expect a return to pre-COVID- jobs growth continues. Leisure, travel 19 unemployment levels until 2023. and hospitality sectors continue to be impacted by border closures.

CPI (%) 1.4 1.6 Wage growth remains well below long- Negative. Weak wage growth is likely term averages. Spare capacity in the to persist for some time. This will be labor market will keep wage growth offset by historically low interest subdued for some time. rates.

Policy rate, end 0.10 0.10 The Reserve Bank of Australia has Positive. Policy rate cuts tend to be of year (%) said it will not increase the cash rate effective in Australia because they until unemployment improves. feed through to mortgages, which are mostly variable rate.

f--Forecast. CPI--Consumer price index. Source: S&P Global Ratings.

3 Mobility Mostly Back To Pre-Pandemic Levels

Driving Mobility Pre- And Post-Pandemic

Sydney driving Melbourne driving Brisbane driving

160

140 Pre-COVID

120

100

20 Post-COVID 0

Source: Apple Mobility Data.

4 Unemployment Rate Is Improving But There Is Still Ground To Recover

Nationwide Unemployment Rates

Jan. 2021 Jan. 2020

TAS

Qld

VIC

NSW

Australia

0% 1% 2% 3% 4% 5% 6% 7% 8%

Source: Australian Bureau of Statistics.

5 Leverage Builds As More First-Home Owners Enter The Market

Uptick In First-Home Owner (FHO) Lending Is Increasing The Share Of High LTV Lending

Lending > 80% LTV as a % of new lending Housing finance commitments first home owner (right scale)

41% $6,000 Growth in FHO Lending is increasing. FHOs often have smaller deposits, translating to 40% higher LTV loans. $5,000

39% $4,000

38% Mil. $3,000 37% High LTV lending dropped off after the onset of COVID-19 when uncertainty was $2,000 high but has increased since mid-2020. 36%

$1,000 35%

34% $- Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep 2019 2019 2019 2019 2019 2019 2019 2019 2019 2019 2020 2020 2020 2020 2020 2020 2020 2020 2020

LTV—Loan-to-value(ratio). Mil.--Million. Source: Australian Bureau of Statistics, Australian Prudential Regulation Authority

6 Australian RMBS Outlook

– Economic momentum continues as vaccinations commence and local economies mostly reopen. – Short, sharp lockdowns continue to affect the tourism and travel sectors but do not appear to be having a material effect on debt serviceability. This reflects the higher exposure to PAYG full-time, salaried employees across most RMBS transactions. – Mortgage-deferral levels continue to fall but are likely to plateau in the coming months as the remaining borrowers under mortgage-deferral arrangements are more likely to be directly affected by COVID-19 and facing longer term debt-serviceability pressures. – Arrears are starting to rise as fiscal stimulus measures taper and some borrowers transition from COVID-19 mortgage-deferral arrangements to formal arrears hardship programs. – Arrears are likely to surface more meaningfully after mortgage-deferral periods formally expire in March 2021. – Improving property prices will help to contain any losses in the event of borrower default as borrowers’ equity positions in their mortgages are enhanced by rising property values.

7 COVID-19 Update

Mortgage Deferrals Plateau As Most Borrowers Exit Arrangements

Prime RMBS Average level of COVID-19 arrangements (%) – Mortgage-deferral levels continue to decline as the economy reopens. Oct. 2020 Nov. 2020 Dec. 2020 – Mortgage-deferral levels will plateau as most borrowers who could resume their repayments have already exited such Major banks 3.18 2.10 1.96 arrangements. – Borrowers who are still under mortgage- Nonbank originators 4.13 3.85 3.82 deferral arrangements are likely to be facing longer term more permanent debt- serviceability pressures. Regional banks 4.05 2.89 3.17 – Lenders will adopt different approaches to transitioning loans off mortgage-deferral Other banks 3.73 2.82 1.55 arrangements. – We expect around 10%-15% of mortgage Nonbank financial institutions 3.12 2.78 2.73 deferrals (based on May-June peaks) to transition to formal hardship arrangements, based on feedback from lenders. – Borrowers who have already exited mortgage-deferral arrangements have Nonconforming RMBS generally resumed repaying their mortgages.

Nonbank originators 4.95 5.00 3.83

Data are as of Dec. 31, 2020. % refers to average % at a trust level. RMBS--Residential mortgage-backed securities. Source: S&P Global Ratings.

9 Borrowers Still Under Deferral Arrangements Have Higher LTV Ratios

Prime LTV Distribution

Prime total RMBS Prime COVID hardship – Loans under mortgage-deferral 50% arrangements are skewed toward more 40% highly leveraged borrowers than the broader RMBS universe. 30% 20% – More highly leveraged borrowers whose income has been affected by COVID-19 are 10% likely to be under greater debt-serviceability 0% pressure. <=60% 60%> and 70%> and 80%> and 90%> and >100% – Highly leveraged loans are more likely to be <=70% <=80% <=90% <=100% less seasoned and lacking repayment buffers, given their limited repayment Non-Conforming LTV Distribution history. – The types of restructuring arrangements Non-conforming total RMBS Non-conforming COVID hardship offered to borrowers transitioning off mortgage-deferral arrangements will be 50% lender specific. This will influence arrears 40% reporting practices. 30% – Victoria has the highest level of mortgage- 20% deferral arrangements in the RMBS sector as 10% of December 2020. 0% <=60% 60%> and 70%> and 80%> and 90%> and >100% <=70% <=80% <=90% <=100%

LTV--Loan-to-value (ratio). RMBS--Residential mortgage-backed securities. Source: S&P Global Ratings. Data as of Dec. 31, 2020.

10 Victoria Has The Highest Level Of Mortgage- Deferral Arrangements

COVID-19 hardship

COVID-19 Exposure By State Total RMBS sector

1% 1%

Northern Territory 20% 23%

Queensland Western 8% 10% Australia

South 4% 6% Australia

32% 32% 1% 2% New South Wales Australian Capital Territory 33% 25% Victoria

Data as of Dec. 31, 2020. RMBS--Residential mortgage-backed securities. Source: S&P Global Ratings. 1% 2% Tasmania

11 Investor Arrears Are Rising Faster In Inner City Areas

Largest Rises In Investor Arrears Were In Areas Close To CBDs – Debt-serviceability pressures were more 30+ days arrears 30+ days arrears acute for investors with properties in inner- Region State Dec. 2020 Dec. 2019 city areas. – Since the pandemic, inner-city areas have Sydney - Eastern Suburbs NSW 2.34% 0.48% experienced some of the greatest increases in arrears, albeit off low levels.

Brisbane Inner City QLD 2.22% 0.59% – Inner-city locations in Melbourne and Sydney have suffered some of the greatest declines in rental income in the past 12 Sydney - Parramatta NSW 2.15% 0.80% months as renters moved out of the city and international borders closed. Melbourne - Inner VIC 1.87% 0.73% – Inner-city areas in Melbourne and Sydney formerly had some of the lowest arrears in the RMBS sector. Sydney - Ryde NSW 1.34% 0.21% – Refinancing conditions are likely to be more difficult for investors with properties in Sydney - South West NSW 3.17% 2.08% inner-city locations, adding to debt- serviceability pressures. Melbourne - Inner South VIC 1.79% 0.71% – Most RMBS transactions are geographically well diversified so the exposure to these locations in most transactions is Sydney - Inner West NSW 1.52% 0.50% insignificant.

Data as of Dec. 31, 2020. RMBS--Residential mortgage-backed securities. Source: S&P Global Ratings. Data set based on investor loans underlying Australian RMBS transactions. Geographical areas are based on the ABS SA4 Classification.

12 Australian RMBS Performance Arrears set to increase as stimulus measures taper and mortgage deferrals end

Prime Arrears Are Edging Up But Low Interest Rates Are Helping Most Borrowers

31-60 days 61-90 days 90+ days Standard variable rates (right scale)

1.80% 12%

Earlier arrears categories are sensitive 1.60% to interest-rate movements 10% 1.40%

1.20% 8%

1.00% 6% 0.80%

0.60% 4%

0.40% 2% 30+ days arrears Dec. 2020: 1.37% 0.20% 30+ days arrears Dec. 2019: 1.28%

0.00% 0%

Source: Reserve Bank of Australia. S&P Global Ratings.

14 Non-Conforming Arrears Well Below Financial Crisis Highs

31-60 days 61-90 days 90+ days Total current loan balance (right scale)

20% 16.00 Nonconforming loan balances have nearly quadrupled in the past five years Nonconforming arrears 14.00 peaked at 17.09% after the 2008 financial crisis 15% 12.00

10.00 Bil. A$.

10% 8.00

6.00

5% 4.00

2.00

0% 0.00

Bil.--Billion. Source: S&P Global Ratings.

15 Prime Prepayment Rates Are Stabilizing

– Prime prepayment rates dipped in the Prime prepayment rate (Inc. Non-Capital Market Issuance) December quarter. This is a seasonal trend, with prepayment rates typically slowing in Nonconforming prepayment rate the fourth quarter as borrowers increase 10-year long-term average prime prepayment rate consumer spending in the lead up to Prime prepayment rate (Exc. Non-Capital Market Issuance) Christmas. 40% – We expect prime prepayment rates to stabilize around long-term averages in 2021 35% because borrowers who were looking to refinance have probably already done so. 30% – Nonconforming prepayment rates increased to 24.37% in December from 21.89% in 25% September. 20% – This could reflect the increasing competition in the nonconforming sector, driving record 15% new issuance volumes and bolstering refinance activity. 10% – A resurgence in property prices could further 5% boost refinance activity, increasing prepayment rates. Rising arrears will offset 0% this to some degree. – Borrowers who might be under financial pressure post-COVID-19 might capitalize on increasing property prices by selling their Data as of Dec. 31, 2020. Source: S&P Global Ratings. homes and monetizing their equity build up.

16 Offshore Observations: International Arrears

International Comparisons – 30+ Day Mortgage Arrears

30+ Day mortgage arrears - Prime RMBS

UK Italy Spain Netherlands Australia

RMBS--Residential mortgage-backed securities. Data as of Dec 31, 2020. Source: S&P Global Ratings.

17 Offshore Observations: International Prepayment Rates

International Comparisons – Prime Prepayment Rates Prime RMBS prepayment rates

U.K Spain Italy Netherlands Australia

30%

25%

20%

15%

10%

RMBS--Residential mortgage-backed securities. Data as of Dec 31, 2020. Source: S&P Global Ratings.

18 COVID-19’s Effect On Losses Will Be Tempered By Rising Property Prices

Property prices are rebounding. Increasing property prices will temper losses in the event of borrower default. The lower loss profile of recent vintages reflects the modest LTV ratio profile of most RMBS transactions and strong equity buildup in many loans.

Cumulative Gross Loss By Vintage Of Cumulative Gross Loss By Vintage Of Origination - Prime RMBS Origination - Nonconforming RMBS

0.07% 0.90%

0.80% 0.06% 0.70% 0.05% 0.60%

0.04% 0.50%

0.03% 0.40%

0.30% 0.02% 0.20% 0.01% 0.10%

0.00% 0.00% 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

RMBS--Residential mortgage-backed securities. Source: S&P Global Ratings. RMBS--Residential mortgage-backed securities. Source: S&P Global Ratings.

19 Arrears Performance Nationwide COVID-19’s effect on debt serviceability is starting to emerge

Debt-Serviceability Pressures Are Emerging At The Margins

The tapering of fiscal stimulus measures Australia and expiration of mortgage-deferral periods for many borrowers will lead to an increase in arrears, but at the margin. Low interest rates, increasing property prices, and strong refinancing conditions for borrowers of a good credit quality bode well for the continued strong performance of the Australian RMBS sector. We expect debt-serviceability pressures to meaningfully surface after March 2021, when mortgage-deferral periods formally expire.

0%-0.74% 0.75%-1.24% 1.25%-1.74% 1.75%-2.24% +2.25%

Map boundaries are based on the ABS SA4 geographical classifications. Some areas on the map have been merged graphically. Source: S&P Global Ratings.

21 Pre- And Post-Pandemic Population Shifts And Their Effect On Debt Serviceability

Annual Migration Trends: June 2019 – June 2020 – Prepandemic population shifts, including Net interstate migration Net overseas migration greater interstate migration to Queensland, increased after the pandemic. 70,000 – Housing affordability traditionally has been a 60,000 key driver of net interstate migration into states like Queensland from New South Wales and Victoria. 50,000 – A shift to more remote working and a desire 40,000 for more floor space to accommodate this will strengthen net interstate migration to 30,000 areas with more affordable housing. – Increased population inflows will translate to 20,000 increased demand for property.

10,000 – This will influence property prices and have positive flow-on effects on debt 0 serviceability as increasing property values improve refinancing prospects. (10,000) – Property price growth will differ for states due to variations in population dynamics. (20,000)

(30,000) NSW Vic. Qld SA WA Tas. NT ACT

Source: Australian Bureau of Statistics.

22 Mortgage Belt And Inner-City Areas Home To Largest Increases In Arrears

Highest year-on-year increases in arrears across the Australian RMBS sector. – The largest year-on-year increases in arrears 30+ Arrears 30+ Arrears were in some inner-city and mortgage belt Regional name State Dec. 2020 Dec. 2019 areas. – Inner-city areas in Melbourne and Sydney Sydney - South West NSW 3.40% 2.08% traditionally have had some of the lowest arrear across the Australian RMBS sector. Sydney - Parramatta NSW 1.99% 0.80% – Greater arrears increases in these areas, albeit off low levels, partly reflects Sydney - Eastern Suburbs NSW 1.50% 0.48% borrowers’ greater debt-to-income levels, particularly in Sydney, where property prices Brisbane Inner City QLD 1.55% 0.59% are expensive. Sydney - Inner West NSW 1.33% 0.50% – Higher debt-to-income ratios increase borrowers’ sensitivity to decreased incomes. Sydney - Ryde NSW 0.97% 0.21% – Rental income in inner-city areas in Sydney and Melbourne has been hurt by COVID-19, Melbourne - Inner South VIC 1.45% 0.71% affecting investor income. This has also contributed to higher arrears in these areas. Melbourne - Inner VIC 1.45% 0.73% – This could change as housing affordability Sydney - Northern Beaches NSW 1.15% 0.49% pressures rise, workers return to the office, and international migration resumes. Sydney - Inner South West NSW 2.26% 1.61%

Sydney - City and Inner South NSW 1.21% 0.58%

Data as of Dec. 31, 2020. RMBS--Residential mortgage-backed securities. Source: S&P Global Ratings. Data set based on all loans underlying Australian RMBS transactions. Geographical areas are based on the ABS SA4 Classification.

23 New South Wales: Unemployment Remains Higher Than Pre-Pandemic Low 111 212

110 104 102 115 105 116 121 108 122 106 127 125 124 119 103 123 128 109 107 113

101 114

NSW’s service-oriented economy has been hit harder by international border closures than other states. This has contributed to a larger rise in unemployment pre- and post-pandemic. Debt-serviceability pressures are typically higher for Sydney borrowers, particularly in mortgage belt areas, given Sydney’s expensive property prices relative to average household income. This increases households’ sensitivity to Current 30+ Peak 30+ Unemployment Exposure pressure on household income. Days Arrears Days Arrears Rate Across RMBS 1.49% 2.69% 6.00% 32%

0%-0.74% 0.75%-1.24% 1.25%-1.74% 1.75%-2.24% +2.25%

Source: Australian Bureau of Statistics. S&P Global Ratings. Note: Numbers on the chart are the geographic SA4 area codes as defined by the Australian Bureau of Statistics. The full list of SA4 areas can be found on slides 31-32.

24 Victoria: Lockdown Hangover Reflected In Higher Mortgage-Deferral Levels

Victoria’s longer lockdown led to a higher proportion of borrowers still under mortgage- deferral arrangements and this is likely to translate to higher arrears in the months ahead. Refinancing prospects might also be more difficult for some borrowers in Victoria. 215 More exposed borrowers include investors 216 with properties in inner-city areas, where 202 rental income has fallen, and self-employed 204 borrowers, who are more highly represented in nonconforming transactions. Improving house 201 prices, low interest rates, and the continued 205 reopening of the economy should help to keep 214 arrears low for most borrowers.

203

Current 30+ Peak 30+ Unemployment Exposure Days Arrears Days Arrears Rate Across RMBS 1.50% 1.86% 6.3% 25% 210 209 211 213

212 0%-0.74% 0.75%-1.24% 1.25%-1.74% 1.75%-2.24% +2.25% 214

Queensland has become the 316 nation's most desirable location since the pandemic. This is 313 reflected in its stronger property price growth and higher net interstate migration. Improving property prices help build borrowers’ equity in their home 317 loans. This helps with refinancing 306 310 prospects, a common way to self- manage out of arrears. 318 309 311 While areas more dependent on tourism will continue to face higher 312 unemployment while borders 315 remain closed and uncertainty over future closures remain, the flow-on 308 effect on arrears will be tempered by the nature of job losses. Tourism 319 sector employees are more likely to be renters. 307 Current 30+ Peak 30+ Unemployment Exposure Days Arrears Days Arrears Rate Across RMBS 1.43% 2.17% 7.0% 23%

0%-0.74% 0.75%-1.24% 1.25%-1.74% 1.75%-2.24% +2.25%

Source: Australian Bureau of Statistics. S&P Global Ratings. Numbers on the chart are the geographic SA4 area codes as defined by the Australian Bureau of Statistics. The full list of SA4 areas can be found on slides 31-32

26 Western Australia: Arrears And Property Prices Are Turning A Corner

Strong demand for iron ore is underpinning Western Australia’s post- pandemic recovery. This is helping property prices, which is good for arrears because it 505 improves borrowers’ refinancing prospects. Arrears remain higher in WA overall due to the presence of legacy loans from the 504 508 mining boom era, many of which are in advanced stages of arrears. These loans typically have high LTV ratios, reflecting the 503 significant market value declines in many parts of Western Australia since the mining 506 boom. 507

509

502

501 Current Peak 30+ Peak 30+ Unemployment Exposure Days Arrears Days Arrears Rate Across RMBS 2.46% 3.10% 6.20% 10%

0%-0.74% 0.75%-1.24% 1.25%-1.74% 1.75%-2.24% +2.25%

27 South Australia: Arrears Less Affected By COVID-19

South Australia’s success in containing the virus enabled its economy to remain open. This is likely to lead to lower increases in arrears flowing from COVID-19. On average, arrears are typically higher in South Australia. This reflects its traditionally higher unemployment rate compared with more populous states with greater 406 employment diversity.

Current 30+ Peak 30+ Unemployment Exposure Days Arrears Days Arrears Rate Across RMBS 1.31% 1.81% 7.10% 6% 405

407

402

404 401

403 0%-0.74% 0.75%-1.24% 1.25%-1.74% 1.75%-2.24% +2.25%

Tasmania’s unemployment rate was below several of its state counterparts in January 2021. Together with property price growth, this has helped to stabilize 604 602 arrears as mortgage-deferral periods expire. Exposure to Tasmania in most RMBS transactions is insignificant, at less than 2%.

603

601

Current 30+ Peak 30+ Unemployment Exposure Days Arrears Days Arrears Rate Across RMBS 0.81% 2.02% 5.90% 2.0%

0%-0.74% 0.75%-1.24% 1.25%-1.74% 1.75%-2.24% +2.25%

29 The Territories: The Best And Worst Of Arrears Performance

701

Northern Territory has the most volatile arrears performance due to small exposures in portfolios. Darwin still has a disproportionate share of COVID-19 hardship arrangements, reflecting the border closure’s effect on the tourism sector.

702 Current 30+ Peak 30+ Unemployment Exposure Days Arrears Days Arrears Rate Across RMBS 2.90% 3.50% 6.2% 1.0%

Australian Capital Territory has the nation’s lowest arrears, at 0.93%, as of Dec. 31, 2020. This reflects its stronger employment profile and lower unemployment.

0%-0.74% 0.75%-1.24% 1.25%-1.74% 1.75%-2.24% +2.25%

30 SA4 Listing Arrears And Exposure

30+ days 30+ days 30+ days 30+ days Geographic arrears arrears Exposure Geographic arrears arrears Exposure area map level level across area map level level across code Regional name State Dec. 2020 Dec. 2019 RMBS code Regional name State Dec. 2020 Dec. 2019 RMBS

101 Capital Region NSW 1.07% 1.40% 1.20% 124 Sydney - Outer West and Blue Mountains NSW 1.53% 1.15% 0.94%

102 Central Coast NSW 1.25% 1.45% 1.54% 125 Sydney - Parramatta NSW 1.99% 0.80% 2.17%

103 Central West NSW 1.33% 1.89% 0.48% 126 Sydney - Ryde NSW 0.97% 0.21% 0.54%

104 Coffs Harbour - Grafton NSW 0.86% 1.05% 0.36% 127 Sydney - South West NSW 3.40% 2.08% 0.90%

105 Far West and Orana NSW 1.68% 2.81% 0.18% 128 Sydney - Sutherland NSW 1.36% 1.13% 0.82%

106 Hunter Valley exc Newcastle NSW 0.80% 1.34% 1.43% 201 Ballarat VIC 1.25% 1.26% 0.66%

107 Illawarra NSW 1.11% 1.29% 1.75% 202 Bendigo VIC 1.44% 1.57% 0.33%

108 Mid North Coast NSW 1.31% 1.49% 0.45% 203 Geelong VIC 0.81% 1.14% 1.14%

109 Murray NSW 0.98% 1.25% 0.68% 204 Hume VIC 1.62% 2.79% 0.30%

110 New England and North West NSW 1.07% 2.21% 0.24% 205 Latrobe - Gippsland VIC 1.65% 1.86% 0.58%

111 Newcastle and Lake Macquarie NSW 0.96% 0.98% 1.64% 206 Melbourne - Inner VIC 1.45% 0.73% 4.40%

112 Richmond - Tweed NSW 1.65% 1.66% 1.05% 207 Melbourne - Inner East VIC 1.19% 0.92% 1.80%

113 Riverina NSW 1.11% 2.61% 0.11% 208 Melbourne - Inner South VIC 1.45% 0.71% 2.26%

114 Southern Highlands and Shoalhaven NSW 1.76% 1.25% 0.27% 209 Melbourne - North East VIC 1.59% 1.30% 2.60%

115 Sydney - Baulkham Hills and Hawkesbury NSW 1.63% 1.11% 1.93% 210 Melbourne - North West VIC 1.96% 1.38% 1.34%

116 Sydney - Blacktown NSW 1.68% 1.43% 2.43% 211 Melbourne - Outer East VIC 1.18% 1.10% 2.48%

117 Sydney - City and Inner South NSW 1.21% 0.58% 3.00% 212 Melbourne - South East VIC 1.61% 1.64% 2.58%

118 Sydney - Eastern Suburbs NSW 1.50% 0.48% 0.85% 213 Melbourne - West VIC 2.01% 1.62% 2.72%

119 Sydney - Inner South West NSW 2.26% 1.61% 3.32% 214 Mornington Peninsula VIC 1.67% 1.70% 1.32%

120 Sydney - Inner West NSW 1.33% 0.50% 1.27% 215 North West VIC 1.24% 1.18% 0.12%

121 Sydney - North Sydney and Hornsby NSW 1.12% 0.65% 2.24% 216 Shepparton VIC 1.20% 1.91% 0.12%

122 Sydney - Northern Beaches NSW 1.15% 0.49% 1.48% 217 Warrnambool and South West VIC 0.93% 1.33% 0.21%

123 Sydney - Outer South West NSW 1.85% 1.83% 1.05% 301 Brisbane - East QLD 1.18% 1.60% 1.48%

31 SA4 Listing Arrears And Exposure

302 Brisbane - North QLD 0.96% 0.81% 2.05% 404 Adelaide - West SA 1.30% 1.22% 0.78%

303 Brisbane - South QLD 1.12% 1.19% 2.82% 405 Barossa - Yorke - Mid North SA 2.22% 3.56% 0.15%

304 Brisbane - West QLD 0.80% 0.76% 1.28% 406 South Australia - Outback SA 2.26% 1.93% 0.13%

305 Brisbane Inner City QLD 1.55% 0.59% 0.96% 407 South Australia - South East SA 1.57% 2.49% 0.30%

306 Cairns QLD 1.94% 1.99% 0.85% 501 Bunbury WA 2.06% 2.60% 0.43%

307 Darling Downs - Maranoa QLD 1.34% 2.05% 0.96% 502 Mandurah WA 2.82% 3.56% 0.30%

308 Fitzroy QLD 2.70% 3.42% 0.92% 503 Perth - Inner WA 1.41% 1.16% 1.03%

309 Gold Coast QLD 1.38% 1.37% 3.23% 504 Perth - North East WA 2.65% 2.91% 1.31%

310 Ipswich QLD 1.63% 2.24% 1.21% 505 Perth - North West WA 2.17% 3.03% 2.01%

311 Logan - Beaudesert QLD 1.59% 2.72% 0.56% 506 Perth - South East WA 2.96% 2.53% 2.06%

312 Mackay QLD 2.43% 3.33% 0.75% 507 Perth - South West WA 2.33% 2.76% 1.51%

313 Moreton Bay - North QLD 1.47% 2.00% 1.27% 508 Western Australia - Outback WA 3.52% 4.31% 0.39%

314 Moreton Bay - South QLD 0.96% 1.00% 0.65% 509 Western Australia - Wheat Belt WA 3.65% 3.66% 0.17%

315 Queensland - Outback QLD 2.30% 4.99% 0.15% 601 Hobart TAS 0.64% 1.05% 0.81%

316 Sunshine Coast QLD 1.33% 1.55% 1.59% 602 Launceston and North East TAS 1.25% 1.12% 0.34%

317 Toowoomba QLD 0.00% 3.39% 0.01% 603 South East TAS 1.83% 1.04% 0.03%

318 Townsville QLD 1.82% 2.62% 1.03% 604 West and North West TAS 0.62% 1.43% 0.22%

319 Wide Bay QLD 1.87% 2.38% 0.58% 701 Darwin NT 3.08% 2.98% 0.64%

401 Adelaide - Central and Hills SA 1.02% 1.13% 1.44% 702 Northern Territory - Outback NT 1.85% 0.98% 0.08%

402 Adelaide - North SA 1.53% 1.67% 1.22% 801 Australian Capital Territory ACT 0.93% 0.88% 1.73%

403 Adelaide - South SA 1.16% 1.28% 1.32% 901 Other Territories WA 0.00% 0.00% 0.00%

32 The 10 Worst-Performing Postcodes

State Suburb Postcode Loans in arrears

VIC Altona east 3025 6.14%

WA Forrestfield 6058 5.58%

WA Byford 6122 4.90%

NSW Catherine Field 2557 4.79%

WA Binduli 6430 4.70%

NT Darwin 800 4.67%

NSW Guildford 2161 4.55%

WA Cloverdale 6105 4.49%

NSW Bankstown 2200 4.46%

WA Maddington 6109 4.46%

Source: S&P Global Ratings. Data as of Dec. 31, 2020. For a full list of suburbs/localities attached to these postcodes, please refer to the Australia Post website.

33 New Zealand

S&P Global Ratings Economic Outlook

2021f 2022f Outlook Effect on credit quality

Real GDP 4.3 2.9 The country has outperformed nearly Improving. New Zealand’s good growth (% year all others in containing COVID-19. progress on the health front has laid over year) the groundwork for a solid economic recovery.

Unemployment 5.8 5.5 A wage-subsidy scheme has run its Improving. A recovery in economic rate (year course but there is not much evidence activity has been reflected in stronger average; %) to date of labor market scarring, with than expected labor market recovery. unemployment falling to less than 5% as of the end of 2020, against expectations of a further increase.

CPI (%) 1.5 1.5 Wage growth is likely to remain Negative but improving. Although subdued in the wake of COVID-19 but wage growth has remained subdued, it labor shortages in some sectors could could rise, given increased demand shift this. for labor, particularly in the retail and construction sectors.

Policy rates, end 0.00 0.50 The official cash rate is set to remain Positive. Lower rates will support debt of year (%) low for 2021 but is forecast to serviceability for borrowers with increase from 2022. variable-rate mortgages.

f--Forecast. CPI--Consumer price index. Source: S&P Global Ratings.

35 House Prices Surge

– New Zealand’s early success in containing the spread of COVID-19 has enabled its economy to remain largely open, despite, international border closures. This has laid the framework for a solid economic recovery. – Wage subsidy schemes have expired, but unemployment is back to pre-COVID-19 level as labor demand has rebounded, particularly in sectors with labor shortages, such as construction. – Housing prices have surged, with property price growth close to 20% in 2020. Growth has been underpinned by low interest rates, returning expatriates, supply shortages, and a winding back of LTV ratio restrictions. – This increases the risk of a property price correction, particularly given the high levels of household debt in New Zealand. To address these risks, the Reserve Bank of New Zealand is reinstating LTV ratio lending limits in March 2021. – S&P Global Ratings raised its foreign-currency sovereign ratings to 'AA+/A-1+' from 'AA/A-1+' and its local currency sovereign ratings to 'AAA/A-1+' from 'AA+/A-1+’ on New Zealand in February 2021. The outlook is stable (see “New Zealand Ratings Raised To 'AA+' FC And 'AAA' LC As Pandemic Risks Moderate; Outlook Stable,” Feb. 2021).

36 RMBS Sector Performance Remains Stable

– The credit quality of the New Zealand RMBS sector is strong, as evidenced by: – Weighted-average LTV ratio of 62%. – Average loan size of NZ$209,626. – Weighted-average seasoning of 43 months. – Low levels of arrears in most portfolios. – All losses to date have been fully covered by lenders’ mortgage insurance. – Several pools are now “small pools,” which have greater borrower concentration risk.

RMBS--Residential mortgage-backed securities. LTV--Loan to value ratio.

37 How To Access RMBS Performance Watch

RMBS Performance Watch including arrears, prepayment, and pool statistics data can be accessed using the link below:

CLICK HERE

Asia-Pacific Structured Finance Surveillance

38 RMBS Analytical Contacts

Kate Thomson Analytical Manager | [email protected]

Narelle Coneybeare Sector Lead | [email protected]

Erin Kitson Sector Specialist Research | [email protected]

Elizabeth Steenson Lead Analyst | [email protected]

Alisha Treacy Lead Analyst | [email protected]

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