The funding side of the coin
Bank balance sheets have remained an active part of the Australian dollar bond market on the demand side during the pandemic but continue to be all-but absent as issuers. There are some signs that wholesale supply could emerge later in 2021 but no deluge is expected.
An influx of deposits, particularly from the retail sector, and low-cost three-year debt made available by the Reserve Bank of Australia (RBA)’s term funding facility (TFF) has eliminated most bank senior funding needs. The major banks have not issued senior debt at tenor longer than 1.5 years since the beginning of the crisis.
The end of the TFF and an improving economy – leading to an accelerating deposit drawdown – could spark revived major-bank term wholesale funding needs as early as H2 2021, though.
Jack Chambers, interest rate strategist at ANZ, says he expects the big-four banks to be back in the senior term-funding market before the end of 2021 and that funding needs will ramp up toward normal levels in 2022.
Suncorp-Metway is one of the only Australian banks to have executed wholesale senior-unsecured funding since the beginning of COVID-19. Following its transaction in February 2021, treasurer Simon Lewis told KangaNews credit growth and deposit drawdowns had created a need to issue.
Banks will also be conscious that the TFF’s three-year fixed-term lending has created a large concentration of maturities between 2023 and 2024 that could be challenging to refinance if not smoothed. Banks may look to front-load some refinancing while market conditions are conducive.
Joanne Dawson, treasurer at Westpac Banking Corporation, tells KangaNews the bank will consider wholesale funding as the composition of its balance sheet changes and the TFF rolls off. But she does not expect a big wave of issuance in the near term.
When banks return to senior funding markets, the demand for their issuance from peers’ balance sheets may not be as strong as it once was. This is because of the reduced size of the RBA’s committed liquidity facility and the end of the TFF – both of which reduce banks’ need to hold, and thus to buy, repo-eligible assets.
However, Tom Wirth, acting treasurer at National Australia Bank, says other factors – including pent-up real-money demand induced by the scarcity of Australian bank, and overall, credit supply – are likely to be an effective offset.
