A good mix of financing important for banks
(23 November 2011 – Australia) The Reserve Bank of Australia (RBA) assistant governor Guy Debelle said banks must spread their credit risk and not rely excessively on covered bonds.
ANZ was first to sell US$1.25 billion (A$1.26 billion) worth of bonds after the Federal Government passed legislation in October permitting their use.
Dr Debelle yesterday said the cap limiting the use of covered bonds - bonds that are secured against pools of assets - was vital and would ensure the banks had a good mix of financing.
Banks can only issue the bonds to the value of 8 percent of their total balance sheet.
'A world where the only source of funding available is secured is just not sustainable,'' Debelle told the Australian Securitisation Forum.
Australian banks are expected to raise up to A$130 billion in covered bond issues over the next few years as they move to increase their funding sources.
The Commonwealth Bank (CBA), Westpac and National Australian Bank (NAB) are all looking to follow the success of ANZ's covered-bond raising.
The CBA is expected to unveil its maiden covered-bond issue, in euros, within a week.
Debelle said healthy banks had a good mix of five types of funding - equity, deposits, unsecured wholesale funding, covered bonds and asset-backed issuance, where the bank sells securities backed by pools of assets.
He added that any savings made by issuing covered bonds would be lost in higher interest rates paid for unsecured debt.
'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.
'I would expect that covered bonds are likely to be primarily an offshore funding source for the Australian banks.''
Dr Debelle yesterday said the cap limiting the use of covered bonds - bonds that are secured against pools of assets - was vital and would ensure the banks had a good mix of financing.
Banks can only issue the bonds to the value of 8 percent of their total balance sheet.
'A world where the only source of funding available is secured is just not sustainable,'' Debelle told the Australian Securitisation Forum.
Australian banks are expected to raise up to A$130 billion in covered bond issues over the next few years as they move to increase their funding sources.
The Commonwealth Bank (CBA), Westpac and National Australian Bank (NAB) are all looking to follow the success of ANZ's covered-bond raising.
The CBA is expected to unveil its maiden covered-bond issue, in euros, within a week.
Debelle said healthy banks had a good mix of five types of funding - equity, deposits, unsecured wholesale funding, covered bonds and asset-backed issuance, where the bank sells securities backed by pools of assets.
He added that any savings made by issuing covered bonds would be lost in higher interest rates paid for unsecured debt.
'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.
'I would expect that covered bonds are likely to be primarily an offshore funding source for the Australian banks.''
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