What do you know – Australian banks punch way above their weight, according to new figures that show Australia’s four big retail banks and Macquarie, the investment bank, have raised a combined $82bn of government-guaranteed debt since October.
As the FT reports on Monday, the five banks accounted for more than 10 per cent of total global issuance of guaranteed debt since the collapse of Lehman Brothers, according to Dealogic – far more than their global position in terms of assets or capital.
Of course, their fund-raising activities have been helped by their position among the most highly-rated banks in the world. The country’s so-called four pillars – ANZ, Commonwealth Bank, National Australia Bank and Westpac – are among less than a dozen banks globally to retain double A ratings, and they have used a spate of equity raisings this year to bolster their balance sheets and tier one capital ratios. Their ratings have also buoyed strong sales of government-guaranteed and non-guaranteed debt.
In fact the rude health of Australia’s banking sector, which had little exposure to US subprime mortgages — and in the eyes of consumers, made a bit too much from lending margins and fees for retail services — has helped the country dodge recession.
They have also been quietly slashing costs, including head counts. In fact, as The Australian noted last week, “Australian retail banks have been the most aggressive across the Asian region to slash their workforces so far this year, despite maintaining profitability and surviving the financial crisis in the best shape in the world”.
However, the FT notes, the sector also relies on overseas borrowing, because domestic deposits are too small to meet the debt requirements of businesses and households. The banks aggressively raised guaranteed debt from December until April, but the volume of debt raised since had slowed, it added.
Even though profits have been a bit off this year and impaired assets continued to rise in the banking system, all in all, the Aussie banks have had a good year – particularly compared to many overseas counterparts. Meanwhile, the pace of growth of impaired assets has slowed significantly, according to central bank figures, which are probably the envy of banks in the US and Europe. As SeekingAlpha noted last week:No doubt impaired assets [in Australia's banking system] will continue to go higher in coming quarters and it would be premature to declare victory as the number of impaired assets being written off is still increasing sharply … However, barring any major shocks to the system, we are unlikely to see the levels of impaired assets experienced in the early 1990’s or that are currently being experienced in the US.And for the icing on the banks’ cake, Australia’s “big four” also vastly improved their positions in this year’s Global Finance magazine rankings of the world’s 50 safest banks, published in late August - all making it into the top 20.
The rankings are based on a comparison of long-term credit ratings by the three main ratings agencies and total assets of 500 large banks around the world.
Of the four Australian banks on the list, NAB had the highest ranking, coming in at number 11, a notch above CBA. In Global Finance’s previous “top 50″ list, published in 2007, NAB was at number 18 and CBA at 19. ANZ, meanwhile, moved up to number 15, from 28, followed by Westpac at number 16, compared with 29 previously. CBA’s New Zealand operation, ASB Bank, also made it to the list at number 17, one notch above global giant HSBC Holdings.
As for the upcoming change in global banking rules, including new capital adequacy requirements under the Basel II regime, Australian banks should not be in the least fazed. One local change, as Bloomberg reported last week, under new liquidity standards being prepared by APRA, Australia’s banking regulator, might require banks to hold more government bonds. The main effect would be to shift a portion of banks’ liquid asset buffers into government bonds and treasury notes at the expense of other high quality assets.
As Crikey commentator Glenn Dyer said recently:
They [Australian banks] have solid capital bases, dominated by real equity, are below the maximum level of gearing suggested in the new rules, and look like they will escape having to raise fresh share capital — unlike European banks that will face a daunting task of asking investors for billions of euros in capital over the next year.
As Lex noted earlier this month, “they don’t call it the lucky country for nothing”.
Related links:
World’s 50 safest banks, 2009 – GlobalFinance
NAB in A$2.75bn equity raising – FT
ANZ share sale raises A$2.2bn – FT
Australia’s CBA net profit beats forecasts – FT