Whether or not there’s less foreign bank capital available to sustain recent levels of lending to Australian business, and, if there is less, whether that is any sort of burden, are two of the undercurrents influencing decision making in banking in Australia.
But is there less? A couple of contrasting views on this have been canvassed in a couple of forums over the last week.
One view published yesterday, and cited first because it’s a mildly contrarian view and short, emerged in the minutes of the monthly meeting of the board of the Reserve Bank of Australia.
According to the minutes the RBA board:
…noted that foreign banks in Australia accounted for about a quarter of business credit, and that their loans were fairly evenly spread across the sectors of the economy. The foreign bank sector accounted for a negligible amount of housing lending in Australia.
Discussions with foreign banks did not as yet reveal widespread withdrawal from the Australian market.
So, on this view there’s no problem now, which is not the same as saying that there won’t be.
John Hudson, the head of syndications at ANZ, provided a more sobering analysis in a seminar held last week by the Finance and Treasury Association.
On Hudson’s, or ANZ’s, estimates, foreign banks operating in Australia (of which there are 36) contributed 46% of funding for bank debt financed through the syndicated loan market in the 2008 financial year.
Hudson estimated that banks without an on-shore presence (numbering 104 in all) contributed 11% of volume. So, that’s 57% of syndicated debt sourced from foreign banks.
He noted that of the commitments by foreign banks (both operating onshore and offshore), 31% are European, 16% are Asian and 10% are North American.
In calendar 2008, ANZ estimated that Australian domestic banks provided 53% of the volume. He said this will be reduced in 2009 and beyond by both the merger of St George and Westpac and Suncorp’s effective withdrawal from corporate lending.
Hudson argued that the likelihood of foreign bank withdrawal was real, given the heavy losses and extensive government assistance to most of the foreign banks that dominate the league tables.
He concluded that foreign banks representing 30% of Australia’s syndicated loan market were retreating to home markets (though this estimate may count lenders such as Citibank that say they are still lending).
Hudson estimated the syndicated market demand in 2009/10 at $130 billion, based on maturing loans of $85 billion, maturing bonds of $35 billion and allowing for a funding requirement of $20 billion in debt-funded new capital expenditure by corporate customers.
Given his conclusions on the retreat of foreign banks, Hudson estimated a “resulting gap in the Australian syndicated loan market for 2009/10 of around $35 billion”.
One mechanism proposed to address this gap is to have the Australian government and banks cooperate to establish a $30 billion fund that, at this stage, will cater only to the refinancing of viable commercial property developments.