Fitch Ratings has affirmed the ratings of two note classes from two SMHL Series transactions, which consist of notes backed by pools of first-ranking Australian residential full-documentation mortgage loans.

All mortgages were originated by Members Equity Bank Limited (ME Bank) and 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 ACTIONSENTITY/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

VIEW ADDITIONAL RATING DETAILS

KEY RATING DRIVERS

Resilient Asset Performance: Fitch has removed the additional coronavirus pandemic RMBS stress scenario analysis that was implemented on 28 July 2020, as we believe the stresses contained in the APAC RMBS criteria are sufficient to account for the pandemic-related uncertainty. The asset model has not been run for either transaction, in accordance with Fitch's criteria.

At the March 2021 payment date, 30+ days arrears of SMHL 2018-1 was 1.2%, which was above Fitch's 4Q20 Dinkum RMBS Index of 1.0%, while arrears for SMHL 2020-1 were below the index at 0.2%. Meanwhile, 90+ days arrears for SMHL 2018-1 and SMHL 2020-1 were at 0.20% and nil, respectively, tracking below the index of 0.58%. Loss performance has been strong, with no losses for either transaction to date.

See the following links for Fitch's pandemic-related credit views and analytical approach:

'Global Economic Outlook - March 2021', published on 17 March 2021, available at https://www.fitchratings.com/site/re/10155644

'Fitch Ratings Coronavirus Scenarios: Baseline and Downside Cases - Update', published on 7 December 2020, available at www.fitchratings.com/site/re/10145938

'Global SF Rating Assumptions Updated to Reflect Coronavirus Risk', published on 3 April 2020, available at www.fitchratings.com/site/pr/10117224

Analytical notes relevant for Australian and New Zealand RMBS transactions are discussed in the following commentary:

'Fitch Ratings' Approach to Addressing Coronavirus-Related Risks for Australian, NZ RMBS', published on 5 May 2020, available at www.fitchratings.com/site/pr/10120792

'Fitch Ratings Updates Australia, NZ RMBS Criteria Assumptions on Coronavirus Effects', published on 28 July 2020, available at www.fitchratings.com/site/pr/10130287

'Fitch Ratings 2021 Outlook: Australia and New Zealand Structured Finance', published on 3 December 2020, available at www.fitchratings.com/site/re/10143773

'Fitch Ratings Removes Additional Coronavirus Stress From Australia, NZ RMBS Criteria', published on 15 March 2021, available at www.fitchratings.com/site/pr/10155482

Limited Liquidity Risk: Cash flow analysis has not been performed for either transaction, in accordance with Fitch's criteria. SMHL 2018-1 pays down sequentially for life, while SMHL 2020-1 is paying down sequentially to build up credit enhancement and will start pro-rata paydown if subordination conditions are satisfied. SMHL 2018-1 benefits from a liquidity facility sized at no less than 1.6% of the outstanding note balance, while SMHL 2020-1 has a liquidity facility sized at 1.0%.

Low Operational Risk: ME Bank is a financial institution headquartered in Melbourne, Victoria and has been involved in the origination and management of residential mortgages since 1994. Fitch undertook an operational review and found that the operations of the originator and servicer were comparable with those of other banks. With the recent acquisition of ME Bank by Bank of Queensland Limited (A-/F2) we do not expect this to have material impact on the operations. We also do not expect the pandemic to disrupt the operations, as staff are able to work remotely if needed.

Economic Rebound to Support Stable Outlook: Fitch expects near-term mortgage performance to deteriorate, but to continue to support the Stable Outlook on the notes. We forecast Australia's unemployment rate at 6.0% in 2021, with GDP growth of 4.7%. We expect GDP growth to stabilise in 2022 at 2.4% and for the unemployment rate to continue to improve to 5.4%.

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

RATING SENSITIVITIES

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.

This section provides insight into the model-implied sensitivities the transaction faces when assumptions - weighted-average foreclosure frequency or weighted-average 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 below should only be considered as one potential outcome, as the transactions are exposed to multiple dynamic risk factors. Fitch modifies the pre-lenders' mortgage insurance recovery rate to isolate the effect of a change in recovery proceeds at the borrower level.

Fitch's previous rating sensitivities for these two transactions were discussed in the following rating action commentary:

Fitch Assigns Final Ratings to SMHL Series 2018-1 Fund at www.fitchratings.com/site/pr/10045013

Fitch Assigns Final Ratings to Upsized SMHL Securitisation Trust 2020-1 at www.fitchratings.com/site/pr/10146978

Coronavirus Downside Scenario Sensitivity

Under Fitch's downside scenario, re-emergence of infections in major economies prolongs the health crisis and confidence shock, prompts extensions or renewals of lockdown measures and prevents a recovery in financial markets.

The class A notes from both transactions are not sensitive to downgrade in this scenario.

BEST/WORST CASE RATING SCENARIO

International scale credit ratings of Structured Finance transactions have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of seven notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of seven notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579.

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 SMHL 2018-1 and SMHL 2020-1 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

Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This 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. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg

Additional information is available on www.fitchratings.com

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