Australia banking regulator opens securitisation review – ET BFSI

Australia‘s banking regulator said on Monday it had ordered a securitisation review after finding irregularities with how some banks repurchased residential mortgage loans that had repayments deferred.The Australian Prudential Regulation Authority said banks should not repurchase mortgages, especially in cases where the quality of the underlying loan is considered high-risk, or when the borrower is finding it hard to make repayments.

Repurchasing their own mortgages showed “implicit support” by those banks for their securitisations, APRA said. It did not name the banks where these irregularities occurred.

The regulator requires banks “to be clearly separate from their securitisations and to permanently (except in limited pre-defined circumstances) transfer credit risk to the securitisation investors.”The regulator said it has asked those banks to disclose their repurchases in upcoming filings and conduct an independent review of their compliance with APRA rules.

Other issues were also identified, the regulator added without providing details, prompting the need for a wider review that will go into 2021. (Reporting by Nikhil Kurian Nainan in Bengaluru; Editing by Stephen Coates)