APRA's APS 120 clarification knocks capital status of ABS

Market sources say a recent clarification of rules covering the capital treatment of securitised assets by the Australian Prudential Regulation Authority (APRA) could further challenge their issuance by banks. While the clarification does not directly affect the use of asset-backed securities (ABS) for funding, achieving capital relief via securitisation is unlikely unless issuing banks can sell a greater proportion of subordinated tranches than is typically the case.