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Major Lenders Experience Strong Growth In Retail Deposits
According to the assistant governor of the Australian central bank, the big four lenders in the country are no longer depending so heavily on wholesale funding markets for their needs, and have chosen instead to raise their finance using the more traditional method of retail deposits since.
Guy Debelle RBA Assistant Governor says that the major lenders have experienced an annual 11 per cent growth rate in their retail deposits, which is in excess of the growth in credit, which has remained flat at 5 per cent.
Mr. Debelle did warn the lenders not to rely exclusively on one source of funding and have a diversity of sources.
Mr. Debelle encourage the lenders to examine covered bond options for fund raising which Australia allowed in October to enable the banks to diversify their funding sources, and which have a major effect on the cost of funding.
Last week ANZ and Westpac both issued covered bonds in the US, raising $2.25 billion between them. The Federal government approved the issue of covered bonds in October, but capped the amount that could be raised using this method at 8 per cent of the total balance sheet, designed to ensure that banks maintain a diversified source of funding.
“A world where the only source of funding available is secured is just not sustainable,” Mr Debelle said.
CBA is expected to issue its maiden covered bond denominated in Euros, whilst rival NAB is also widely expected to follow suit shortly.
“Any pricing gain obtained from issuing covered bonds is likely to be offset to some extent by a demand from unsecured debt holders for more compensation in the future.
“So I see the role of covered bonds as primarily broadening the potential investor base rather than a means of reducing overall funding costs for banks,” Mr Debelle said.
One analyst offered a contrasting opinion, agreeing that whilst covered bonds will give Australia’s major lenders access to a whole new category of investor and expand their funding options, the ability to issue such bonds will not reduce their cost of funding.
The analyst said whilst it would however provide help to regional lenders, credit unions and building societies, by reducing their funding costs and providing diversity of funding.
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