AUCKLAND, New Zealand–Credit Union South will become New Zealand's first credit union to source funding through securitization as it looks to reduce funding costs, and pursue an ambitious growth agenda.
Credit Union South has received approval from both members and security holders for a mortgage securitization program arranged by Westpac Bank that could ultimately give the credit union access to up to $50 million of funding.
Credit Union South CEO Tania Dickie told interest.co.nz the Westpac deal would allow the credit union to broaden its funding away from just members' deposits, and grow both personal loans and residential mortgages.
The securitization program is expected to reduce overall borrowing costs, meaning Credit Union South will be better placed to compete with other lenders and strengthen its reserves through increased retained earnings, which stood at $20.7 million at June 30.
The cost of funding through the securitization program, including margin and line fee, is 120 basis points over a floating wholesale rate benchmark, Credit Union South reproted. The current equivalent margin derived from the published member deposit rate card is about 170 basis points, it notes, adding this margin would need to be higher for it to raise "significant incremental volumes" of member deposits.
"We have a BB- credit rating. (So) in competition to the banks to attract investors our rates have to be slightly compelling," Dickie told interest.co.nz.. "We realize that we have to be relevant and we believe we've got a good value proposition that can be enjoyed by a few more people."
The credit union has $125-million in assets and 21,000 members.