Big-four banks the funding constant in an ever-changing world

Australia’s big-four banks returned to wholesale public issuance in size over the second half of 2021 and into the turbulent market conditions of 2022 – though their actual balance sheet need changed less than some might think, even through the preceding pandemic. At the annual KangaNews-RBC Capital Markets big-four bank funders roundtable, the majors discussed how their issuance strategy is responding to the latest wave of challenges and new market conditions.

  • Alex Bischoff Managing Director, Balance Sheet, Liquidity and Funding WESTPAC BANKING CORPORATION
  • Fergus Blackstock Head of Term Funding COMMONWEALTH BANK OF AUSTRALIA
  • Scott Gifford Head of Group Funding ANZ
  • Michael Johnson Executive, Funding and Liquidity NATIONAL AUSTRALIA BANK
  • Laurence Davison Head of Content KANGANEWS
  • Gerard Perrignon Managing Director, Debt Capital Markets RBC CAPITAL MARKETS

Davison How have the big-four banks had to change execution practices to deal with 2022’s market conditions?

BISCHOFF We are always adapting to the market. When markets were more liquid and duration was cheap, banks did more duration and issued more in senior format. Products like covered bonds and tier-two played a much smaller role in our plans a decade ago, so while the absolute quantum of funding we have done through this period has been pretty consistent, the mix has shifted quite a lot – by product and currency.

Westpac has typically done A$30-40 billion (US$22.8-30.4 billion) of annual wholesale issuance for close to a decade. What has changed is the mix and the duration. For instance, tier-two is now A$5-6 billion and covered bonds account for about 20 per cent.

The biggest challenge in the last 12 months has been duration, not volume. We have been really pleased with the absolute level of capacity in the domestic market this year, despite CLF [committed liquidity facility] changes. The US dollar market has also been strong: we have done three US dollar deals this calendar year.

Duration is the biggest change, but it is a clear choice given the volatility and pricing changes we have seen. Doing 10-year unsecured funding at the levels the market is offering today does not really make sense. I’m sure we would all like to see more duration in covered bonds, but a shorter market is a symptom of highly volatile rates and a product that does not offer a large spread.

BLACKSTOCK Liquidity has been there for us all year. The issue has been price, and navigating volatility and duration. Just two years ago, we were issuing very little unsecured funding, other than what we needed for regulatory capital. This has left space in a natural part of the maturity stack that we can fill in now, which just happens to sit well with current conditions and more challenging pricing.

JOHNSON We have been focused on listening carefully to the market – which has at times meant taking less duration than we want. There is a lot of liquidity out there, it is just not necessarily in the buckets we ideally want. But we have adapted to this and accepted it. Sometimes a covered-bond trade might have to be shorter than we would ideally want, or we have to issue on a day that might not be perfect for us but suits investors.

We are talking about funding A$40 billion, which means we must accept that there are not as many days to execute as we want – there have been something like 40 zero issuance days in the US dollar market, which is pretty unusual. There will be days that are ‘good enough’ to execute – we have used a couple of them and it has worked out well.

BLACKSTOCK In 2022, 10 out of 10 execution days have been very rare. If a deal is actionable, we can have a look at it – and our experience with this has been good this year. The market has been receptive.

GIFFORD ANZ has only recently returned to pre-COVID-19 issuance levels – a little later than our peers. This meant we had some maturity gaps in the two-year bucket that we have been keen to fill. This is not typically a priority tenor but it is currently working for investors and ourselves given market conditions.

There have certainly been a few instances this year in which market access has been limited and we have to overlay our internal preferences with external issuance windows. We do not want to hesitate in this kind of market. If there is an opportunity, we are less likely to wait.

BISCHOFF We have experienced this in US dollars within the last three or four weeks. There is genuine credit differentiation across the globe once more. It is not just a 10-20 basis point difference covering all global bank credits – it is hundreds of basis points in some instances.

There has certainly been a tangible benefit, while markets are at historically wide levels, to being a well-regulated, strongly capitalised, highly liquid banking sector. We are all paying more, but our relative position has improved versus other jurisdictions.

Execution conditions are challenging. But being able to offer simple, unsecured transactions with high ratings has been a real benefit as liquidity has become a more valuable tool in a world where rates are rising and QE has ended.

“There is genuine credit differentiation across the globe once more. It is not just a 10-20 basis point difference covering all global bank credits – it is hundreds of basis points in some instances.”

Perrignon There has been a bifurcation between the haves and have nots in the banking sector, which is evident in the US market. Australian banks seem to be highly regarded and investors like their outlook. The challenge is that issuance opportunity windows are becoming more fragmented and less prevalent because of the impact of macro volatility and data prints, which have become no-go zones. Is this placing pressure on issuers to execute at accelerated pace before windows close?

JOHNSON The number of data points that move the market is a challenge, but we suspect this will prove to be a temporary phenomenon. When we issue in US dollars, we typically announce in Asian hours so Mondays have become even more challenging than they were historically. In general, we would rather be out during a busy day with a lot of transactions going on than flying solo on a not so good day. I also think investors are adapting. The response on busy days is very impressive and we are seeing more of these days happening. We are not too concerned. We are part of a high-quality sector and we differentiate ourselves pretty well.

GIFFORD Diversification is important in this context. We have diversified through covered bonds and the domestic market has been strong. I agree that being nimble and not wedded to a transaction date is important in this environment and we have incorporated this into our strategy.

“The domestic savings pool has grown substantially so it is absolutely fair to expect Australian dollar deal size to continue growing over the medium term. The rating agencies have touched on this when they have analysed the percentage of funding we source offshore versus domestically – it has been an improving trend.”

Extra components of the funding mix

There has been no shortage of talk in the Australian market about how the major banks will fund the maturity of debt drawn under the term funding facility (TFF): more than A$187 billion (US$142.2 billion), mostly borrowed by the big four and all maturing in 2023 and 2024. Funders say TFF maturities form just one part of a bigger picture, though.

DAVISON There is still talk about the ‘TFF cliff’ of maturities in 2023-24, based on the facility all being three-year funding that was drawn in 2020-21. What does the funding task look like over the year ahead when factoring in TFF maturities?

BLACKSTOCK The TFF is another form of wholesale funding – we treat it as we would any other maturity. Because of how it was drawn, there are a couple of periods where there are more significant maturities than there otherwise would have been. But we factored this into our funding plan. We will smooth out these maturities with some pre-funding and use some of the short-term capacity we paid down during the pandemic.

The message of smoothing out the maturity profile is what we are communicating to investors. It is a similar story for most of the Australian banks: at least three of the four majors look relatively similar over the next couple of financial years, and what we have coming is in sync with what we have done historically.

JOHNSON All the banks have done the right thing by approaching the TFF refinancing task in a systematic and deliberate way, considering how much funding has been done over the last year.

I think it speaks for itself that none of the major banks viewed the TFF solely as term funding. It is balance sheet support, which means we will look at the overall balance sheet and liquidity position. We have run additional liquidity through the committed liquidity faciity (CLF) transition and ahead of the TFF transition period, and funded accordingly. It looks like a big number, though, so I can understand how it might be misunderstood.

BISCHOFF Westpac Banking Corporation has executed about A$30-40 billion a year over the past decade. Sometimes this includes incremental prefunding, but risk appetite has not changed. The TFF rolls off next year, but we are accessing the market once again with a A$30-40 billion task – it is a known outflow.

The components that should drive more volatility in our forecast are balance sheet and credit growth. We have experienced 275 basis points of rate rises and the expectation is that we go to a 3.85 per cent cash rate. Relative growth on both components – asset and liability – should be the element we are trying to manage as a treasury business.

I always say the aberration was COVID-19, not what we are doing now or what we did before. The level of consistency over the last decade was useful for the Australian banks, and for domestic and offshore investors, at system and individual bank level.

DAVISON Deposits have been a positive story over the last couple of years as saving soared during the pandemic. With rates rising, are households now drawing down on savings?

BISCHOFF It is correct that we have seen a strong period of absolute deposit growth. This is now slowing, but the outcomes on liquidity can still be quite nuanced. As an example, there has been a reversion from at-call to term deposits that means the liquidity efficiency of our deposits is increasing. We can therefore manage slower absolute system deposit growth.

JOHNSON The system dynamic is key, specifically how much liquidity will remain in the system after the TFF. QT is a dynamic that we watch month to month and we expect credit and deposit growth to decline. But it depends – at the system level – on understanding what our share of the whole pie is.

BLACKSTOCK We have spoken to peers internationally that are ahead of us with QT. Generally, they say deposits have continued growing but at a slower pace.

DAVISON Lower credit growth will presumably offset easing deposit inflows to some extent.

BLACKSTOCK Yes, if credit and deposit growth match each other there is no change in the funding gap. There are nuances between various types of deposit, specifically at-call and term, but we watch these carefully.

GIFFORD There is an element of nimbleness in this area, too. We have to adapt as the situation evolves, and also take a macro view. Federal and state budgets matter, by which I mean how fast the pathway back from deficit to balanced budget is. For example, at ANZ while we expect retail deposit growth to slow, for as long as federal and state budgets remain in deficit we expect this to be mildly supportive of system-wide deposit growth.


Davison How much of a surprise is the domestic market strength the banks have experienced in 2022, particularly the volume available? What has been the reason behind this strength? It might be worth noting the relative absence of competing credit supply – it has been a very quiet year for corporate issuance, for instance.

GIFFORD The main thing is that we had not issued for a period of time and investors have warmly welcomed us back. We had a lot of domestic maturities across the period in which we were not issuing, so the capacity for our name does not surprise us.

In our home market, bouts of volatility tend to result in investor demand prioritising liquidity and a flight to quality, which is adding to our success in the domestic market. It has been very pleasing and reassuring, but not surprising.

BISCHOFF There are offsets in every cycle, and some of them come through avenues that we do not expect. In November 2021, none of us thought demand for fixed-rate issuance was going to increase as much as it did, creating an incremental pool of liquidity that had not been there for close to a decade. In fact, the fixed tranche became a key component of deals in 2022, opening the door to new mandates and money that had not previously participated in our deals or at least not in the sizes we have seen.

This is just one offset that was not expected four months ago. The reality is that very few market users expected rates to be where they are today. But we have been surprised with the level of absolute liquidity and the market has been very constructive.

BLACKSTOCK There was a tendency to read too much into the likely impact of the CLF [committed liquidity facility] being taken away compared with how it played out in practice. The Australian dollar market is broader and deeper than many had thought – it does not rely purely on bank balance sheets. We have all had good experiences through this calendar year, especially as most of us were absent for some time before it.

We took the opportunity to play catch up when there was good line of availability. Bearing in mind where we are in the spread cycle, investors are also getting compensated for investing in our paper.

JOHNSON Corporate issuance slowing down had some impact, as does the fact that the RMBS [residential mortgagebacked securities] market has also been challenging. From an investor perspective, RMBS pricing versus where senior bank paper is trading is another trade-off to consider.

GIFFORD We have done a lot of work with global investors over recent years, notwithstanding pandemic-related border closures, to keep them engaged and their credit limits in place.

In our conversations with investors, when there is volatility and issuance windows are tighter we also encourage them to be forthright about reverse enquiry. When we are sitting in Melbourne and viewing markets globally, this really helps us understand which trade has the best execution conviction. Reverse enquiry really helps boost confidence for any particular transaction.

“There was a tendency to read too much into the likely impact of the CLF being taken away compared with how it played out in practice. The Australian dollar market is broader and deeper than many had thought – it does not rely purely on bank balance sheets.”

Davison I wonder if we might also tend to overlook system growth in the domestic credit market. Local deal sizes were growing organically before the pandemic and funds continued to flow into the superannuation system in 2020-21 regardless of whether or not the banks were issuing. In this sense, it surely should not be much of a surprise that deal sizes are bigger again in 2022.

GIFFORD The domestic savings pool has grown substantially so it is absolutely fair to expect Australian dollar deal size to continue growing over the medium term. The rating agencies have touched on this when they have analysed the percentage of funding we source offshore versus domestically – it has been an improving trend in the Australian system over a period of 10 years. This dynamic should continue.

Davison Is any certainty emerging on duration? The RBA [Reserve Bank of Australia] has slowed its pace of rate hikes and the market environment seems positive at the end of November – including domestic deal volume migrating toward five years from three. Are issuers hopeful of a more constructive environment on tenor?

GIFFORD In our latest Australian dollar deal there was a greater skew toward a more traditional three- and five-year breakdown, from the greater weighting to three-year only earlier in 2022. We should keep in mind that it has been a rough year for fixedincome investors, many of which have had double-digit losses.

As we get closer to terminal rates, there may be a natural willingness to capture some of the yield that is available and add duration back into portfolios. Again, it is about listening to investors and understanding where they see the cycle.

JOHNSON There was a period in which there was a lot of three-year supply, too. It can reach a point where natural appetite shifts just based on supply. What we are seeing now is not a groundbreaking long-term change but there is an increased amount of five-year and less three-year demand.


Davison On the other hand, euro execution has been harder in 2022. Have the banks made up euro volume via covered-bond issuance or is this component of the overall funding task down on its long-term average?

BLACKSTOCK Euro covered-bond cadence has been similar to a typical year – we are in the market about twice a year. Euro senior has been more of a relative-value game, but the structure of our funding has changed somewhat anyway with the introduction of more tier-two. This means senior issuance has reduced. For CBA [Commonwealth Bank of Australia], the frequency of visits to the euro market has not changed all that much.

BISCHOFF Europe has primarily been a covered-bond market since 2012. We typically issue one senior-unsecured deal in any given year but this has not always been the case. The Australian banks’ New Zealand subsidiaries have been more active in the unsecured euro market, so we have ongoing exposure at group level. But US and Australian dollars have made up the majority of our senior-unsecured funding.

Things change, though. Had we held this discussion in September, I’m sure we would have agreed that sterling issuance was unlikely. But that market came back to life efficiently after an extraordinary bout of volatility. In other words, it is not just about conditions in US and Australian dollars. Some other markets have developed and matured in recent years.

JOHNSON We are the ‘Lone Ranger’ as the only Australian bank that has done euro senior issuance this year. It was a green-bond deal, which helped the trade’s execution and pricing. Australian and US dollars, however, have proven to be the most efficient and appropriate trade for us considering the time we spent out of the market and the scale we need.

BISCHOFF Over the past quarter, unsecured would have been the more executable product in euros when looking at demand. The issue is not so much the demand profile but relativity between products. Ultimately, we are all trying to manage the most efficient outcome for our banks, so we need to have the right trade-offs between markets, products and pricing to get the right cost versus the risk-based outcome for the group.

BLACKSTOCK We have not had a problem with diversification this year – we have executed in eight currencies. We are getting diversity by picking up pockets of demand from different parts of the globe rather than just relying on the G3 currencies.

“There has been a bifurcation between the haves and have nots in the banking sector, which is evident in the US market. Australian banks seem to be highly regarded and investors like their outlook. The challenge is that issuance opportunity windows are becoming more fragmented and less prevalent.”

Perrignon The Australian banks have been pretty active in US dollars in recent months but has investor reception changed given the backup in rates and spreads? Has there been a change in investor mix in transactions?

BISCHOFF We are coming out of a period where we could almost do any trade on any day and it worked. That was the reality for a couple of years – but, equally, at the same time we really did not have a lot of funding to do.

We are not necessarily talking to different groups of investors in the US: we continue to need the same type of high-quality investor in the US to get the right outcome. My observation is that our US books are more similar to what they were 5-10 years ago than what they have been for the last couple of years.

We are still getting large oversubscriptions, but not four or five times. The marginal dollars may not be there, so it is important to get execution right – but the high-quality investors are still active. This could perhaps change again when the market gets certainty on peak rates.

When we executed in August, we offered what the market wanted and the tenor it demanded. This means we did an 11NC10 [11-year non-call 10] tier-two rather than a 15NC10, because this was the preference. The call premium was being priced at a much higher level than what would make sense for us and, equally, the execution risk was higher.

BLACKSTOCK We have to listen to investors because their duration appetite has changed frequently through the course of the year. It is very difficult to sit down and definitively plan a five-year deal, for example, because investor appetite might have changed by the time we get to execution.

At points in the year, investors have wanted to be defensive and short, and at other times we were getting feedback that everyone wanted duration – they wanted 10-year senior, which is not a trade we felt we needed to do. Listening, and getting good advice and investor feedback, has been critical in this environment.

“We have been focused on listening carefully to the market – which has at times meant taking less duration than we want. There is a lot of liquidity out there, it is just not necessarily in the buckets we ideally want. But we have adapted to this and accepted it.”


Perrignon The banks are still working through the accumulation of regulatory tier-two requirements. Will the challenges of the market make it harder to achieve a steady, linear buildup into the deadline?

BLACKSTOCK The Australian banks have so far all done a great job building and navigating the changed environment and market conditions. From what we see in banks’ disclosures, we are all tracking well to the 2026 deadline. From our perspective, it would be brave to take an approach that is too far from a linear path to 2026 because it is impossible to determine what market conditions will bring.

We will continue to build into 2026 using a mix of core markets supplemented by others. We initially built some duration into the stack so we now feel we have opportunities to reflect where market demand is in our issuance.

JOHNSON There was initially a lot of interest from overseas traders after the APRA [Australian Prudential Regulation Authority] letter* came out. They reacted quickly and priced in a downside scenario, which was a lower chance of bonds being called. This was an overshoot and we have witnessed a retracement of the pricing impact as investors begin a process of attempting to evaluate the probability of a call.

Our job is to communicate to investors on this issue and try to explain the implications. Many global markets are callable, including sterling, euros and core Asian currencies. Transparency in communication and understanding of global markets is important as we build out to the 2026 deadline.

BLACKSTOCK On the issue of calls, it is worth recognising that some investors have reacted negatively. The reality is there is more uncertainty on bank callables than there was before and it has translated into a somewhat different price.

BISCHOFF We are taking a relatively linear approach to meeting our TLAC [total loss-absorbing capacity] requirements given the size of the build. Westpac [Banking Corporation] is at 5 per TLAC so we have more to do to get to 6.5 per cent plus the buffer. In this uncertain world, it is difficult to make assumptions on how risk will play out over the next 12 months. So continuing on a smooth pathway remains appropriate.

A bank treasury’s function is to make sure we are appropriately managing risk profile from a funding, liquidity and capital perspective. Clearly, we all would prefer spreads to be tighter – but we do not have that level of control. Spread widening is certainly not ideal, but the primary thing we must consider would be if execution becomes a challenge. This is a very different question. If the callable market becomes challenging, we would all have to reflect on it differently.


Davison Will there be less covered-bond issuance if there is a greater degree of market certainty in 2023?

BLACKSTOCK Covered bonds are a core part of the funding toolkit. The thing that has changed, particularly in Europe, is duration. But covered bonds are absolutely a core part of our funding – and we expect to issue even in a good market.

BISCHOFF Covered bonds have economic value and it would be silly not to use the product and the diversity it provides. Issuance diversity and consistency play into a stable profile that helps through the cycle, including in conditions such as we have experienced over the past year. I do not foresee any change in our behaviour over the next few months.

Davison If there has not been a notable step up in covered-bond issuance, does it imply that the market environment has not been as ‘rainy’, or volatile, as we might have thought? The banks have not needed to use the covered-bond product to access the domestic market, for instance.

GIFFORD I am not sure domestic investors need the security of the collateral – they are comfortable with our position in the market as major banks. Senior-unsecured is viewed as a sufficiently defensive asset class.

By contrast, some offshore markets value covered bonds greatly in times of volatility – which is why we issue them during such times. Covered bonds add tremendously important diversification and we continue to engage with their investor base, which offers a positive addition to the Australian system.

JOHNSON It is still a rainy day product, but investor engagement with the product is good for all of us across the four core currencies. There is almost always a trade available. Even though it might look like there are a lot of covered bonds in the market, it is generally possible to bring another one.

Davison The days of major banks issuing multiple large residential mortgage-backed securities (RMBS) deals every year appear to be over – securitisation has become purely a funding diversification play. Does the product still have value?

JOHNSON We have issued and it is an important product for us. Some key investors have strong appetite for this product so the deal we did in 2022 was an important transaction for us. I do not know if we will have the same cadence every year, but it is an important product for the major-bank sector.

Clearly, RMBS has been under pressure in general. Our A$1.5 billion trade was larger than other deals in the sector in the lead-up and since, but also smaller than our most recent previous transactions. This speaks to the challenges in the RMBS market when it comes to getting an outcome worth pursuing.

We felt comfortable with our outcome. We included a green tranche, so there were multiple aspects to the transaction that worked for us despite a challenging market overall in June.

BISCHOFF It is an important product. The challenge is the captive pool of borrowers in the Australian market that are almost solely reliant on it. Given the demand profile, they have had to re-price it materially wider. We have access to products like covered bonds and, with anything we issue, we will consider relative value compared with domestic senior. The metrics do not necessarily add up for RMBS right now. We have been through cycles like this before, though, and we expect this one to adjust at some point.

BLACKSTOCK It remains an important product, but it has had a challenging year. This does not mean, however, that it does not have a place in our funding profile.

GIFFORD RMBS has not traditionally been a large part of ANZ’s task but it remains important for certain pockets of investors and the relationship with these investors is critical. Our RMBS deals are rare but they still have an important place.

Perrignon Triple-A RMBS tranches have been challenging. Given the re-pricing we have experienced, why would an investor buy triple-A RMBS over Australian Commonwealth government bonds right now?

BLACKSTOCK They are different markets with different investor bases. A lot of the issuers have no other options, either: they need to keep issuing and clear their warehouses.

Rate hikes and asset impact

The remarkable resilience of the Australian household – most recently to rapidly rising rates – continued at least to the end of 2022. Banks are aware that more challenging times may lie ahead but note that whatever transpires will be from a very strong starting position.

DAVISON If we accept the premise that there is at least a 2-3 month lag between interest rate hikes and the full impact on household balance sheets, Australia is likely still waiting for the consequences of the Reserve Bank of Australia (RBA)’s run of hikes. Is asset quality holding up? Is the market on the verge of a significant downturn in loan performance?

GIFFORD The resilience and quality of the Australian mortgage portfolio is strong, and the underwriting quality gives us confidence on how borrowers will cope with these rate rises.

APRA [the Australian Prudential Regulation Authority]’s requirement that we include a 300 basis point serviceability buffer and overlay it with minimum interim interest rates means that, to date, the 2020-21 cohort of borrowers is coping with the rises.

It is true that the hikes have been material, but they are within the stress test envelope. We have also looked at the data, including the 30-day arrears rates from the 2020-21 vintages that are rolling into variable rates. The performance is better than our group level 30-day arrears. This plays to the resilience of Australian households. They have used the last few years to build significant buffers – including offset account balances. Credit performance is strong.

The key is unemployment. While unemployment remains low and consumers start to see pay rises and a boost to Australian household income levels, we expect mortgage performance to hold up. This reflects the strength of the economy.

What we do expect to see as households adapt to higher mortgage rates is changed consumption patterns – in particular discretionary consumption. But we are not seeing these changed consumption patterns as yet.

BISCHOFF Asset quality metrics improved across the entire portfolio over the last six months of our financial year. Stress in mortgage portfolios in Australia and New Zealand is lower. However, we are more cautious on the outlook. We have increased the weighting to our downside scenario and provisioning is still above pre-COVID-19 levels.

We are clearly cautious as we look forward, but the absolute base – the makeup of the mortgage portfolio and the level of savings in the system from the fiscal responses and QE that have been built up over the last two years – means there is a large buffer borrowers can use to absorb this rapid change in the rates cycle.

This is not to say there will not be pools and pockets of stress. We will need to work with our customers and their businesses to help them through this period.

DAVISON Do you think borrowers are maintaining their buffers so far, or are they starting to draw down on them?

BLACKSTOCK Deposits in the system have held up well. We are not seeing any signs of stress at this point.

JOHNSON It is just too early to say. We have a conservative provisioning posture and we are monitoring the tail risk that exists in all our portfolios, but it is still early.

PERRIGNON The financial stability review suggests 70 per cent of fixed-rate mortgage product written during the COVID-19 period is due to roll into variable by the end of 2023. We will have a much better idea of pockets of stress this time next year.

BISCHOFF Borrowers who took a fixed-rate mortgage from Westpac [Banking Corporation] at a low rate were assessed at the prevailing variable rate, plus the buffer, with a minimum assessment rate just above 5 per cent. Importantly, unemployment is still around 3.5 per cent and forecast to rise to 4.5 per cent in 2023, rather than the 5-6 per cent we were at prior to COVID-19.

GIFFORD At the end of the day, mortgage holders will prioritise the payment of mortgages and use what is left for discretionary spending. This has natural follow-on impacts to the economy via changed consumption patterns.


Davison There has been no explosion of issuance volume of bank sustainability-labelled deals. Why has there not been more?

GIFFORD We really like the market and are committed to it. We would like to do something when the time is right. ANZ is one of the largest bank issuers of UN Sustainable Development Goal bonds, with four lines and A$5 billion volume outstanding.

The main reason we have not done a transaction in 2022 is that we have not done a lot of anything. But we continue to engage very deeply and remain committed to sustainable capital markets.

JOHNSON This partly goes back to the issues with the euro market in general, which have resulted in fewer euro senior and tier-two trades in 2022. The euro market’s execution and pricing benefits for ESG [environmental, social and governance] issuance are much more developed than other markets for issuers. Limited supply from the Australian majors has meant limited ability to deploy in that format.

We executed one euro green trade in 2022, which demonstrated that this is an important aspect of our overall funding – given we had not done one for four years. But deploying the collateral is an important decision, because we want to do it in a way that makes sense and investors value.

Davison Is there any benefit to issuing ESG product in the domestic or US dollar markets?

JOHNSON There is a benefit in the domestic market. But the trades we do here can be so large, so the challenge becomes how we do it practically. There is the uncertainty, if we use a normal-sized Australian dollar trade, that we might end up with an outsized volume outcome – which would mean we may not have enough capacity for other markets.

GIFFORD While we haven’t issued a labelled bond this year, all of us have made leaps forward in the ESG space. Engagement with specialist investors has moved from green or labelled bonds to the stage where all four major banks have signed up to the Net Zero Banking Alliance (NZBA). We have all done a lot of work putting out glide paths toward 2030 including interim reduction targets on the key priority high-emission areas aligned to NZBA commitments.

The level of engagement is high, so I would not read too much into the fact some of us have not done a labelled green or sustainable bond in recent months. We have all stepped up in this space, just in a broader sense.

BLACKSTOCK We have spent significant time on this topic internally and also with the market. We have built a new team within treasury in the last 12 months and there is a lot of ongoing work – we just have not issued in ESG format.