Australian Banks, Focused On Housing, Are Losing Corporates To Offshore Funders

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While Australia’s major banks are battling for an ever-increasing share of the low growth housing market, it seems that they are losing out at the top end of town as US and European pension funds – attracted by relatively high rates in Australia – step in to fund billions of dollars in corporate loans.

The AFR reports this morning that Barry Sharkey, UBS co-head of capital markets said “Banks and investors are competing against each other for assets at the moment. Capital market conditions remain incredibly strong, whether debt or equity, domestic or offshore.”

He noted the Aristocrat acquisition this week of VGT was partially funded from offshore institutions and that the new Westfield spin-off Scentre had raised $3 billion in Europe to partially repay a $5 billion bridging facility from the local banks.

But it seems it’s not just a focus on housing that is making it difficult for the banks to compete but rather regulatory changes associated with Basel III. Chris Williams, UBS co-head of equities, said:

“If you want term [funding] you cannot necessarily get it from the domestic trading banks. That has been exacerbated by Basel III because the amount of capital and liquidity you have to hold against the loan can be sensitive to the term of the loan.”

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