The Greek debt crisis is increasing the cost of funding for Australia's Big Four banks, but credit market experts say rising deposit rates are counteracting the threat.
As the sovereign debt crisis in Europe continues to drag on with a 12 billion Euro tranche of Greek bailout money delayed until next month at the earliest, the heads of Australian banks have voiced concerns.
Westpac chief executive Gail Kelly has said she is "clearly worried" about the situation, while Commonwealth Bank chief executive Ralph Norris told ABC radio on Friday night that the worsening debt crisis could trigger a new credit crisis in financial markets.
The concern is that if Greece defaults on its loans, it could become a European version of the Lehman Brothers collapse, sparking a new seizure of credit markets.
Australia's Big Four banks source 40 per cent of their wholesale funding from overseas debt markets, where spreads have been widening thanks to the troubles in Greece.
Australian bank spreads are believed to have widened by up to 20 basis points.
Vivek Prabhu, portfolio manager and credit analyst for Perpetual, said the latest iTraxxs credit index that follows 25 major corporate and bank issuers in Australia last week blew out to 120 basis points, the widest it's been in months and larger than when the Japanese tsunami hit in March.
But he said Australian banks are less reliant on wholesale funding than they used to be thanks to an increase in deposit rates.
"The savings rate is running at 12.5 per cent," he said.
"If you look at that against credit growth, the amount of money banks are lending out, that's closer to 5 per cent."
"Last year the 4 major banks borrowed about $140 billion in new debt issuance. This year that requirement has dropped to about $90 billion"
"That's left them less exposed than they were historically."
Prabhu also said that while any increase in funding costs would eat into a bank's margins, interest rates paid on term deposits had not followed the cash rate rises, giving them a further buffer.
Source: www.financialstandard.com.au
As the sovereign debt crisis in Europe continues to drag on with a 12 billion Euro tranche of Greek bailout money delayed until next month at the earliest, the heads of Australian banks have voiced concerns.
Westpac chief executive Gail Kelly has said she is "clearly worried" about the situation, while Commonwealth Bank chief executive Ralph Norris told ABC radio on Friday night that the worsening debt crisis could trigger a new credit crisis in financial markets.
The concern is that if Greece defaults on its loans, it could become a European version of the Lehman Brothers collapse, sparking a new seizure of credit markets.
Australia's Big Four banks source 40 per cent of their wholesale funding from overseas debt markets, where spreads have been widening thanks to the troubles in Greece.
Australian bank spreads are believed to have widened by up to 20 basis points.
Vivek Prabhu, portfolio manager and credit analyst for Perpetual, said the latest iTraxxs credit index that follows 25 major corporate and bank issuers in Australia last week blew out to 120 basis points, the widest it's been in months and larger than when the Japanese tsunami hit in March.
But he said Australian banks are less reliant on wholesale funding than they used to be thanks to an increase in deposit rates.
"The savings rate is running at 12.5 per cent," he said.
"If you look at that against credit growth, the amount of money banks are lending out, that's closer to 5 per cent."
"Last year the 4 major banks borrowed about $140 billion in new debt issuance. This year that requirement has dropped to about $90 billion"
"That's left them less exposed than they were historically."
Prabhu also said that while any increase in funding costs would eat into a bank's margins, interest rates paid on term deposits had not followed the cash rate rises, giving them a further buffer.
Source: www.financialstandard.com.au
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