(4 November 2011 – Australia) There was another win for National Australia Bank (NAB) this week as the banks covered bond was given an initial AAA credit rating by agency Fitch.”The launch of NAB’s covered bond program sees the commencement of what is expected to be an active source of additional funding for Australia’s major banks,” David Carroll, a director in Fitch’s structured finance team, said on Thursday.
A covered bond gives money-market investors a claim on the underlying assets, such as mortgages, if the issuing bank runs into difficulty. Previously, depositors had the rights to all the assets of a failing bank.
The new arrangement makes the bonds more attractive to investors, potentially allowing banks to borrow funds from global money markets at a lower rate.
Both NAB and Commonwealth Bank are undertaking a series of investor meetings in Europe and the US, although the issue of the bond is yet to be finalised.
Australian rules permit banks to issue the equivalent of 8 percent of their assets in covered bonds, which means banks could potentially issue up to A$160 billion of these instruments.