As is the case with so many things in 2020, this year’s discussion was a little bit different to past years. The roundtable was virtual and phrases that were unknown to us just 12 months ago such as COVID-19, social distancing and flattening the curve were common place.
The funders discussed their reshaped issuance need, the Reserve Bank of Australia (RBA)’s term funding facility (TFF), the ongoing need to accumulate additional-capital issuance, Australian lending-book quality and credit growth, and global investor relations in an era of social distancing.
Term Funding Facility
The establishment of a TFF has acted as a core piece of the RBA’s liquidity response framework to the COVID-19 crisis. Its impact on the funding strategy of the entire Australian banking complex has been significant, serving to almost completely eliminate the major bank’s funding gap, removing them from public senior debt markets since the first months of 2020. According to Mostyn Kau, Head of Group Funding ANZ; ‘The TFF has been a near-term game-changer’.
Bank Capital
The Australian majors looked back upon the first year of the banking regulator APRA’s implementation of a Loss Absorbing Capacity framework, whereby APRA will initially require the major banks to lift Total Capital by three percentage points of RWAs by 1 January 2024. This requirement, which at the time of implementation was expected to cumulatively strengthen the loss-absorbing capacity of the banks by $50 billion, has resulted in a broad range of Tier 2 transactions in global markets over the first year of ramp up. The banks reflected on these transactions, as well as other transactions which have defined the AT1 bank capital space.
Credit Books
The current economic circumstances arising from forced shutdowns and social distancing restrictions have had a significant impact on businesses. The allowance of mortgage and loan deferrals has assisted loan books to perform well so far however, there are emerging areas of stress especially arising from the second lock down in Victoria and continued border closures between states. ‘The situation in Victoria has clouded the outlook. We are working through what this might mean for the trajectory of the recovery and, indeed, how much slower and shallower it may be’. Scott Mitchell Head of Funding National Australia Bank‘s
