Fitch Ratings has affirmed the ratings of two note classes from two SMHL transactions at 'AAAsf' with a Stable Outlook.

The transactions consist of notes backed by pools of first-ranking Australian residential full-documentation mortgage loans. All mortgages were originated by Bank of Queensland Limited (BOQ, A-/Stable). The notes were issued by Perpetual Limited in its capacity as trustee for SMHL Series 2018-1 Fund and by Perpetual Corporate Trust Limited in its capacity as trustee for SMHL Securitisation Trust 2020-1.

RATING ACTIONS

Entity / Debt

Rating

Prior

SMHL Series 2018-1 Fund

A AU3FN0044798

LT

AAAsf

Affirmed

AAAsf

SMHL Securitisation Trust 2020-1

A AU3FN0056990

LT

AAAsf

Affirmed

AAAsf

Page

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VIEW ADDITIONAL RATING DETAILS

KEY RATING DRIVERS

Stable Asset Performance: The transactions' 30+ day arrears at end-September 2023 were 1.2% for SMHL 2020-1 and 1.9% for SMHL 2018-1, above the 2Q23 Dinkum RMBS Index's 1.07%. Excluding hardship loans, the arrears were 0.9% and 1.6%, respectively. Meanwhile, 90+ day arrears were 0.9% and 1.2%, above the 2Q23 Dinkum level of 0.53%, or 0.7% and 1.1% excluding hardship loans. Losses remain benign. There has been one defaulted loan in SMHL 2018-1, which was covered by excess spread.

Credit Enhancement Supports Ratings: We did not perform asset or cash flow modelling for this review, in line with our APAC Residential Mortgage Rating Criteria. SMHL 2020-1 and SMHL 2018-1's rated notes have subordination of at least 3.4x and 1.4x, respectively, of the 'AAAsf' portfolio loss from the last model run. SMHL 2020-1 is paying down principal pro rata and will revert to sequential paydown if performance deteriorates or it reaches the clean-up call.

SMHL 2018-1 has extended its revolving period to September 2028, at which time it will begin to pay down sequentially. The risks associated with the revolving period are mitigated by BOQ's stable product history, pool eligibility criteria and the use of portfolio parameters that ensure portfolio characteristics are maintained. Structural features include liquidity facilities to cover shortfalls in required payments. Excess spread is available to cover portfolio losses.

Low Operational Risk: BOQ is headquartered in Brisbane, Queensland, and has been involved in the origination and management of residential mortgages since 1874. BOQ acquired ME Bank in 2021, which is now a division of the retail bank. We undertook an operational review and found that the operations of the originator and servicer were comparable with market standards and that there were no material changes that may affect BOQ's ongoing ability to undertake administration, collection and servicing activities.

Tight Labour Market Supports Outlook: Portfolio performance is supported by Australia's continued economic growth and tight labour market, despite interest rates increasing from May 2022 to June 2023. GDP growth in the year to June 2023 was 2.1% and unemployment was 3.6% in September 2023. We expect GDP growth of 1.7% for the full year, then falling to 1.5% in 2024, with unemployment at 3.8%, increasing to 4.2% next year. This reflects the expected impact on Australia's economy from China's property downturn.

The key rating drivers listed in the applicable sector criteria, but not mentioned above, are not material to this rating action.

RATING SENSITIVITIES

Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade

Transaction performance may be affected by a deterioration in economic fundamentals and consumers' financial position in Australia beyond our expectations, where available credit enhancement cannot compensate for higher credit losses.

Unanticipated increases in the frequency of defaults and loss severity on defaulted receivables could produce loss levels higher than Fitch's base case and are likely to result in a decline in credit enhancement and remaining loss-coverage levels available to the notes. Decreased credit enhancement may make certain note ratings susceptible to negative rating action, depending on the extent of the coverage decline. Hence, Fitch conducts sensitivity analysis by stressing a transaction's initial base-case assumptions.

The rating sensitivity section provides insight into the model-implied sensitivities the transaction faces when assumptions - WA foreclosure frequency or WA recovery rates - are modified, while holding others equal. The modelling process uses the modification of default and loss assumptions to reflect asset performance in up and down environments. The results should only be considered as one potential outcome, as the transactions are exposed to multiple dynamic risk factors.

The transaction structure supports a lenders' mortgage insurance (LMI)-independent rating for the rated notes. LMI is not required to support the ratings due to the level of credit support provided by the lower notes.

Rating action commentary for SMHL 2018-1

Rating action commentary for SMHL 2020-1

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade

All rated notes are at the highest level on Fitch's scale and cannot be upgraded.

USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10

Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action.

DATA ADEQUACY

Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pools and the transactions. There were no findings that were material to this analysis. Fitch has not reviewed the results of any third-party assessment of the asset portfolio information as part of its ongoing monitoring. Prior to the transactions closing, Fitch sought to receive a third-party assessment conducted on the asset portfolio information, but none was available.

As part of its ongoing monitoring, Fitch reviewed a small targeted sample of ME Bank's origination files and found the information contained in the reviewed files to be adequately consistent with the originator's policies and practices and the other information provided to the agency about the asset portfolio.

Overall, Fitch's assessment of the asset pool information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

The issuer has informed Fitch that not all relevant underlying information used in the analysis of the rated notes is public.

ESG Considerations

The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.

Additional information is available on www.fitchratings.com

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