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Australia’s banking royal commission and the sluggish state of corporate capex seem likely to shape the future of domestic credit at retail and institutional level. Neither factor points to a major supply uptick.
The Australian Prudential Regulation Authority (APRA) made its first official pronouncement on a potential Australian equivalent of total loss-absorbing capacity (TLAC) rules in November 2018. Local market participants are still assessing the potential consequences.
The demise of interbank offered rates globally looks set to be the latest major upheaval international capital markets will have to confront. Australian borrowers need to start preparing for a major shift in the years ahead.
In a world of renewed volatility with political risk at a heightened level in Australia and abroad, it is no surprise that strategists find it easy to highlight a raft of potential future risk factors for markets.
Australia’s four major banks have been very active issuers in global markets, particularly in US dollars. Like their global peers, though, the Australian banks saw their aggregate funding requirements decline this year at the same time as pressure built in the form of rising spreads, market volatility and fallout from the local banking royal commission.
Asian investors say their market can fulfil even the largest Australian funding needs – but they still value the liquidity they believe a 144A leg adds to deals over the Reg S-only format. All they are asking for, they say, is fair allocation.
The Asian buy side wants clarity on issuance plans and deals to be designed with their preferences taken into account. By contrast, it does not require frequent updates outside of deal-related engagement.
With corporate supply limited, Asian fund managers might consider looking at a rare growth area for Australian-origin debt issuance: nonbank financial institutions. But these names fund in asset-backed format, and the Asian buy side is still struggling with negative perceptions of the asset class.
Australia’s four major banks have been very active issuers in global markets, particularly in US dollars. Like their global peers, though, the Australian banks saw their aggregate funding requirements decline this year at the same time as pressure built in the form of rising spreads, market volatility and fallout from the local banking royal commission.
While issuance in new asset classes has been driven by regulatory requirements in recent years, ongoing market volatility and lower funding requirements could see financial institutions re-energise their activity in some previously unloved asset classes.
The shape and format of Australian dollar issuance by global banks is in a state of flux in late 2018. However, major international issuers say the currency continues to form an important part of their funding mix and diversification plans.
Most of the world’s major bank issuers have initiated labelled environmental, social and governance (ESG) funding. Green bonds are clearly the leading ESG asset class to date, but as well as growing green programmes some international banks are looking closely at knitting wider sustainability goals into their debt issuance.