Australian banks that rely on overseas wholesale funding will not be negatively impacted by a weaker Australian dollar.
That is the opinion of HSBC chief economist Paul Bloxham, who told a panel of chief economists at last week’s Finsia annual conference that banks actually don’t carry foreign exchange exposure in their overseas wholesale funding contracts.
“All of that funding it hedged back into Aussie dollars,” Mr Bloxham said.
“The banks actually don’t carry the foreign exchange exposure; they have hedged it back against those longer-term contracts for that offshore funding,” he said.
“The currency itself should have very limited impact on the story.”
In recent months the majors have led the charge of record-low interest rates by issuing money into the wholesale market cheaply – the five-year swap rate is down to just over three per cent.
However, over the past five years banks have been reducing their exposure to wholesale offshore markets, Mr Bloxham said.
“What was around about 30 per cent of their funding back in 2008 is now back to perhaps around 20 per cent of their funding,” he said.
A bigger concern than the falling Aussie dollar is if economic conditions in Europe deteriorate, Mr Bloxham added.
“If those markets became less liquid over time it might be tougher for Australian banks to get into those markets at a reasonable price,” he said. “But that is not apparent at the moment.”