NAB looks to covered bonds for extra funding
(15 May 2012 – Australia) Turmoil in Europe has National Australia Bank (NAB) considering a fresh issue of covered bonds in the coming months.
Crucial funding could be secured by the bank as Europe’s economic problems continue to strain global credit markets, this has also meant banks have been slower than usual to secure wholesale money to fund lending books.
Australian regulators last year relaxed rules allowing local banks to issue covered bonds.
The bonds give money-market investors a claim to some bank assets, such as mortgages, which means they come with a solid credit rating. This makes the bonds more attractive to investors, potentially allowing banks to borrow funds from global money markets at a lower rate.
Between them, Australia's big four banks are expected to borrow as much as A$100 billion from global markets this financial year, to make up for a shortfall in their deposit base. While this is a large headline figure, it is down on recent years as demand for loans has slowed.
NAB chief financial officer Mark Joiner said the start of the financial year was a difficult time for funding.
''The first quarter, when we normally get quite a bit of issuance done, was disrupted by the European sovereign debt concerns, and so we really had to play some catch-up,'' Joiner said.
However, he said, issuance of covered bonds by NAB by the end of September was ''quite likely'', adding to the A$4 billion it has already sold.
If NAB has raised A$14.6 billion of wholesale funding, this is about two-thirds of its A$23 billion target for financial 2012.
Australian regulators last year relaxed rules allowing local banks to issue covered bonds.
The bonds give money-market investors a claim to some bank assets, such as mortgages, which means they come with a solid credit rating. This makes the bonds more attractive to investors, potentially allowing banks to borrow funds from global money markets at a lower rate.
Between them, Australia's big four banks are expected to borrow as much as A$100 billion from global markets this financial year, to make up for a shortfall in their deposit base. While this is a large headline figure, it is down on recent years as demand for loans has slowed.
NAB chief financial officer Mark Joiner said the start of the financial year was a difficult time for funding.
''The first quarter, when we normally get quite a bit of issuance done, was disrupted by the European sovereign debt concerns, and so we really had to play some catch-up,'' Joiner said.
However, he said, issuance of covered bonds by NAB by the end of September was ''quite likely'', adding to the A$4 billion it has already sold.
If NAB has raised A$14.6 billion of wholesale funding, this is about two-thirds of its A$23 billion target for financial 2012.
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