Asset-Backed Securities in Australia: 2025 Guide & Opportunities

Asset-backed securities (ABS) are gaining renewed attention in Australia as the financial sector adapts to a shifting economy and evolving regulatory frameworks. With the Reserve Bank of Australia (RBA) and the Australian Prudential Regulation Authority (APRA) tightening lending standards and promoting financial stability, ABS are becoming a strategic tool for both issuers and investors in 2025. Let’s break down what ABS really means for Aussies, how the market is evolving, and what to watch out for as the year unfolds.

What Are Asset-Backed Securities, and Why Are They Trending?

An asset-backed security (ABS) is a type of financial investment that’s backed by a pool of underlying assets—typically loans such as car loans, credit card receivables, or even residential mortgages. When you buy an ABS, you’re essentially investing in the cash flows generated by these pooled assets. In return, issuers (often banks or finance companies) get immediate access to capital, which they can use to fund more loans or shore up their balance sheets.

• Real-world example: In 2025, several Australian non-bank lenders have turned to ABS to fund green loans and electric vehicle (EV) financing, responding to the surge in consumer demand for sustainable products.
• Why the buzz? Higher interest rates and tighter bank lending have made ABS an attractive option for both yield-seeking investors and lenders looking for new funding avenues.

How the ABS Market Works in Australia

Australia’s ABS market has matured significantly, with over $40 billion in new issuances in 2024 and a similar pace forecast for 2025. The most common types of ABS include:

• Auto ABS: Backed by car loans or leases—particularly popular as Aussies embrace EVs and hybrid vehicles.
• Consumer ABS: Backed by credit card receivables, buy-now-pay-later debts, and personal loans.
• RMBS (Residential Mortgage-Backed Securities): Technically a subset, these remain the largest securitisation asset class in Australia.

Issuers pool together thousands of similar loans and sell securities in tranches, each with different risk and return profiles. The highest-rated tranches get paid first, while lower-rated tranches offer higher yields to compensate for greater risk.

2025 Policy Update: APRA’s revised securitisation standards (APS 120) require stricter disclosure and due diligence, meaning investors can now better assess the underlying asset quality and risk.

Opportunities and Risks for Australian Investors

ABS offer a unique blend of diversification and yield, especially at a time when traditional bonds and term deposits may not keep pace with inflation. However, as with all investments, there are risks to consider.

• Opportunities:
  • Attractive yields: Many ABS products in 2025 offer yields 1–2% above comparable government or bank bonds.
  • Diversification: Exposure to consumer credit or auto loans can reduce reliance on traditional equity and property markets.
  • ESG focus: New ABS products are emerging to finance green assets, such as solar loans and EVs, aligning with sustainability goals.
• Risks:
  • Credit risk: If underlying borrowers default, returns may fall short. Higher rates in 2025 could test household and business solvency.
  • Complexity: ABS structures are layered, making them less transparent than direct investments. Understanding tranching and cash flow waterfalls is key.
  • Liquidity: Some ABS may be harder to sell quickly, especially in volatile markets.

Example: In early 2025, a major Australian non-bank lender issued $500 million in green auto ABS, with strong investor demand but higher-than-expected pricing due to market volatility and new regulatory scrutiny. This underlines both the appetite for yield and the need for careful risk assessment.

The Outlook for ABS in 2025 and Beyond

With the Australian economy navigating inflationary pressures and global uncertainty, ABS are likely to remain a favoured funding and investment tool. Expect continued innovation in green and socially responsible ABS, alongside more robust investor protections thanks to APRA’s updated rules. However, as household debt remains high and economic growth moderates, investors should weigh the balance between risk and reward carefully.

• Watch for new ABS launches tied to renewable energy, EVs, and fintech lending platforms.
• Monitor APRA and RBA commentary for shifts in regulation or macroeconomic policy that could affect ABS performance.