Speaking at the Australian Government Fixed Income Forum in Tokyo last week, the RBA’s assistant governor (financial markets), Christopher Kent, said that there was a common perception that Australia’s foreign borrowings have been largely intermediated by the banks.
“While the banks do raise a portion of their debt offshore in order to fund their lending to Australian businesses and households, the extent of this is much less than in the past,” Mr Kent said.
By contrast, non-financial corporations have been far more willing and able to access offshore funding than in prior decades. They now account for a larger share of foreign borrowing than banks.
Mr Kent noted that federal government borrowing from offshore increased as a share of GDP following the global financial crisis.
“The reduced use of offshore funding by the banks has been offset by much greater use of domestic deposits,” the assistant governor said.
“The big shift away from short-term debt towards deposits started around the time of the global financial crisis. These changes were in response to the demands of the market and those of regulators for banks to make greater use of more stable sources of funding.”
Mr Kent also noted that there has been an increase in the diversity of issuers over the past few years.
“In the RMBS market, low spreads have encouraged more issuance by smaller competitors to the major banks. Last year, these numbered 17, which was the highest ever.”
Also, resource-related companies have been much less active now that the mining investment boom has come to an end, while companies outside of the resource sector stepped up their issuance to high levels last year (Graph 14).
Interestingly, the Reserve Bank assistant governor noted that there has been a recent pick-up in foreign ownership of asset-backed securities, which he believes suggests that non-residents have entered the secondary market to purchase asset-backed securities, thereby adding some liquidity to a market that is normally not particularly liquid.
“While Australian banks still play a role in tapping into funding offshore, that role is less important than it used to be. Indeed, over recent years, a broader range of issuers have been obtaining funding, in both onshore and offshore markets, and this has occurred at somewhat longer tenors than in the past,” Mr Kent said.
[Related: Golden era for banks is over: Morgan Stanley]