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Non-banks to take greater slice of corporate loan market

Non-bank lenders will continue to pile into Australia’s syndicated loan market, driving further growth in the sector in the future. 

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Speaking on an expert panel at ANZ’s 2018 Debt Conference, Metrics Credit Partners managing partner Graham McNamara said he counted himself among the “believers” expecting the market to continue to expand

"I think [Australia’s loan market] will be more active than what it is now and I think there’ll be more participants,” - McNamara

“I think it will be more active than what it is now and I think there’ll be more non-bank participants providing greater market liquidity,” he said.

Growth in that area of the market has been remarkable. According to Gavin Chappell, Head of Loan Syndication Australia at ANZ, 39 non-bank investors have participated in the loan market over the past 12 months. To provide context, in 2012 there was only nine investors and in 2014 there was 11.

“It’s dramatic growth in the past four or five years in terms of the number of institutional investors that have participated,” Chappell said.   

NBL

First State Super Portfolio Manager Ross Pritchard said while NBLs make up less than 10 per cent of the Australian loan market at the moment, he expects it to grow to become more in line with the US model, where credit markets are more institutional and driven by entities such as insurers and pension funds. 

“[NBLs are] two thirds of the market there, it’s a significant number,” he said. “The bond market is twice the size of the equity market.

“I’m not sure where [Australia] will be in two years but I do think it will be somewhere between where it is currently at less than 10 per cent and that US number. I think it’s just a slow but steady migration of the Australian market to something a little more like that model.”

John Corrin, Head of Loan Syndication at ANZ, expects the influx to be more-pronounced in certain sub-sectors of the market.

“I would say that within a few years 50 per cent of the leveraged loan market will be to non-banks,” he said. “And maybe 50 per cent of the project finance market will be to non-banks.”

The insights were delivered on a panel featuring McNamara, Chappell, Pritchard, Corrin and Linda Cunningham, Head of Debt at Cbus Super Fund.

Shane White is senior production editor at bluenotes

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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