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Banks take advantage of cheaper wholesale debt

Banks take advantage of cheaper wholesale debt

(18 December 2012 – Australia) Better conditions on global funding markets have given local banks an opportunity to buy back billions in wholesale debt that has been guaranteed by the taxpayer. Close to A$10 billion has been bought in recent weeks – under the guarantee of wholesale borrowing, which provided a lifeline to the financial sector during the GFC, banks were able to pay the government a monthly fee in return for using its AAA credit rating.

In a sign of the sharp improvement on funding markets since November, however, banks have sought to lower their costs by purchasing back-guaranteed wholesale debt from bond holders and refinancing it at lower interest rates.

ANZ is this week finalising a plan to buy back up to A$3.5 billion worth of government-guaranteed debt, after Westpac last month bought back A$3.4 billion in bonds and National Australia Bank spent A$4.4 billion on the same purpose.

The Commonwealth Bank is the only big four lender that has not bought back government-guaranteed debt in recent weeks.

At the peak of the scheme, almost A$170 billion in wholesale debt was guaranteed by the taxpayer, but latest Treasury figures from mid-November show the scheme's liabilities had fallen to A$84 billion.

Despite the lower wholesale funding costs, Westpac, Commonwealth, ANZ and NAB all passed on 20 basis points of this month's 25 basis point cut in the cash rate, blaming higher costs from increased competition for deposits.
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