Australia's central bank says risks from non-bank lenders limited

SYDNEY (Reuters) - Australia's central bank said on Monday that risks from non-bank lenders in securitisation are limited as the labour market remained resilient, supporting households and businesses, and the size of the sector remains small overall.

In a speech in Sydney on Monday, David Jacobs, head of domestic markets department at the Reserve Bank of Australia said while there has been a potential for risk to build up in the securitisation market, there are limited signs of strain so far.

"The key point I want to reiterate is that risks from non-bank lenders are currently somewhat limited by the small size of the sector, limited connections to the rest of the financial system, and their funding being sourced mainly from sophisticated investors," Jacobs said.

For example, arrears rates for residential mortgage-backed securities (RMBS) were similar to that of mortgages extended by banks, he said, adding that it was not obvious that the relative risks of RMBS have shifted noticeably.

The RBA has kept interest rates at a 12-year high of 4.35% for an entire year now, but the labour market has remained surprisingly strong, a reason that markets have not fully priced in a rate cut until May next year.

Mortgage arrears are on the rise, but they were at historically low levels, the RBA has said, adding that just a fraction of loans in arrears were in negative equity and the financial system remained resilient.

(Reporting by Stella Qiu; Editing by Jacqueline Wong)