Bank funding gap narrows further

At the height of the financial crisis in 2008/2009, the spotlight was firmly brought onto the proportion of funds Australian banks – particularly the big four – sourced offshore to fill the gap between customer deposits and financing their growing loan portfolios.

The report, Australian Bank Funding and Liquidity: Domestic Funding Gap Continues to Narrow, noted that year-on-year deposit growth continued at nine per cent in the six months to 31 March. Loan growth over the same period sat at eight per cent.

Tanya Tang, the report’s author, said that the narrowing domestic funding gap has stabilised wholesale debt issuance by Australia's major banks, and that short-term debt remains well below previous peaks.

Additionally, overall deposit quality has improved, as banks have focused on gathering more stable deposits following the full implementation of the Liquidity Coverage Ratio (LCR) regime on 1 January this year.

In breaking down borrower demand, Ms Tang said business lending had rebounded strongly over the half year, although this is not expected to continue.

“While business growth rebounded over the period due to lower interest rates and increased competition amongst banks, its sustainability is questionable given that business confidence remains patchy and the capital expenditure outlook is weak,” she said.

There were no surprises when it came to investor lending, which grew more rapidly than any other lending segment. As a result, Ms Tang said Moody’s supported APRA’s intervention in investor lending.

“We view the imposition of regulatory restrictions on investor housing to be credit positive, in light of growing housing market imbalances in inner Sydney and Melbourne.”