RBC Capital Markets hosted their annual Australian bank funding roundtable in partnership with KangaNews at the end of 2021. The backdrop to the discussion is an economic environment that has surprised on the up side almost throughout the pandemic. While the banks expect house price growth to moderate in 2022, they also foresee an offsetting pickup in business credit as Australia continues to emerge from the COVID-19 era.
The pandemic – or, more accurately, the government and central-bank response to the pandemic – had a profound impact on Australian major-bank funding as the big four were mostly absent from the issuance market, the roundtable was held at an important juncture for the sector as the banks had resumed issuance of benchmark deals across formats and global currencies.
Despite the confluence of recent events – most notably the end of the Reserve Bank of Australia (RBA)’s term-funding facility (TFF) and the cessation of the committed-liquidity facility (CLF) – the message from the majors seems to be that they are largely back on ‘2019-type’ wholesale funding requirements albeit perhaps toward the top end of range.
Over the next 2-3 years, the majors will have to refinance a substantial volume of TFF funds provided by the RBA. However, the banks say the replacement will largely be a like-for-like exercise that will not of itself add significantly to their funding need.
Elsewhere, the whole Australian banking complex is working through the end of the CLF. This requires the big four to change the makeup of the liquid asset books they hold to manage potential future periods of funding market liquidity – in a way that could have funding implications. It could also reduce the size of the bid for bank wholesale debt issuance from other banks.
However, the majors say CLF transition is also manageable at this stage – noting their access to currency markets beyond the Australian dollar and that even at home the significance of the bank bid may have been overstated.
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