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Australian Lenders To Escape Worst Of European Sovereign Default Crisis
The Big Four Australian lenders are widely expected to be able to weather the storm caused in wholesale funding markets as a result of the European sovereign debt crisis, since most of them are fully funded for the rest of the year.
Most analysts are predicting that the cost of obtaining funding is set to rise, as markets once again reverberated in fear at the prospect of a possible Greek default, despite the European Union approving a US$1.08 trillion stabilization package for the Euro.
The announcement of the bailout prompted a rally on global financial markets on Monday. In Australia, the yields on 10-year government bonds rose by nine basis points to 5.56 per cent.
The cost of insurance against default on European corporate bonds declined during London trading hours on Monday, as the market assimilated the implications of the European Union’s stabilization package.
According to Deutsche Bank, the Big Four Australian lenders are already fully funded for the calendar year, which means that they should be able to time future issuance, when funding costs decline and markets recover confidence.
James Freeman, Deutsche Bank banking analyst said that the fact that the Big Four Australian lenders were amongst the highest rated in the world, would mean they would not find their access to funding restricted.
“Given the recent market concerns around the escalating Greek debt crisis and the speculation of a contagion effect throughout the EU, we don’t see this as a key concern for the Australian banks and their access to wholesale funding. The crisis has the potential to translate into increased funding costs, but given the major banks have raised more than half of their 2010 funding task, we believe the banks will be able to continue to raise wholesale funding in the international markets.” he said.
Deutsche Bank reckons that Westpac still requires about $16 billion in funding this year, whilst rival ANZ still needed to raise $8 billion.
Gail Kelly, chief executive of Australian banking major Westpac, once again resumed her warnings that the lender continues to face pressure on funding costs, but assessed that Westpac had extended the term of its funding, to minimize the number of times it needed to tap the markets.
Mr Freeman said: “We think the key risk around the deterioration in debt markets will be around the price rather than access to funding and we continue to believe Australian banks will be able to meet their international financing requirements.
“If credit markets were to become implicated by Greece or the EU sovereign concerns, then any significant threat to the availability of funding is likely to see the government reintroduce the government guarantee.”
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