Australian banks to widen funding sources

By added on 11/11/2009

Australia's corporate bond market is likely to expand in the coming years as banks look to diversify their funding sources and local investors seek to increase fixed income holdings.


Westpac Banking Corporation group treasurer Curt Zuber said yesterday that Australian banks would be looking to issue bonds with longer terms and to a wider pool of investors in the wake of the financial crisis.


Before the global financial crisis, banks tended to issue shorter-term debt for offshore funding because it was cheaper.


The accompanying difficulty in refinancing debt which many companies faced because of the global financial crisis meant securing funds became more important, even if it meant paying more for it.


Reserve Bank of Australia head of domestic markets John Broadbent said local companies had returned to issue bonds in 2009, mainly to replace bank loans, which had become much more expensive and harder to obtain.


Mr Zuber said Australian investors, including superannuation funds, still had a strong bias towards equities, although that was changing after the experience of plunging equity markets during the crisis.


“Covered bonds could be an option for local investors,'' he said.


Covered bonds are corporate bonds that are secured to specific assets such as mortgages, and which provide a cash flow to cover interest payments. This makes them safer than plain corporate bonds.