Local turmoil should offshore banks head homeFont Size: Decrease Increase Print Page: Print Richard Gluyas | November 15, 2008 Article from: The Australian AUSTRALIAN corporates could face serious funding pressures as foreign banks abandon the local loan market.
Investment bank Merrill Lynch estimates there is $54 billion of debt held by 20 foreign banks that could retreat to their home markets because of capital or credit impairment issues.
Merrill says around $150 billion of $285 billion in domestic syndicated debt is on the balance sheets of offshore banks, with $54 billion held by "retreating" lenders that are likely to be rationing credit in Australia.
While this created refinancing opportunities for local banks at vastly improved margins, local banks could be forced to raise more capital to support increased lending.
Alternatively, some syndicates could collapse, bringing forward potential bad debts. "Situations might arise where a corporate finds itself in trouble because one of its syndicate members will not be in a position, or willing, to refinance an existing syndicated facility," Merrill says.
"If such a situation does arise, and the other members of the syndicate elect not to fill the gap left by the exiting bank, the corporate might be forced into an early workout or liquidation scenario, which could potentially result in a larger bad debt for the banks involved."
Merrill says global banks have now raised more than $800 billion to shore up their capital positions after nearly $1 trillion of write-downs.
It says the focus of these lenders is likely to shift away from non-core markets such as Australia -- particularly when they are pressured by governments, which have introduced deposit and term funding guarantees -- to direct scarce capital to domestic markets.
Real estate investment trusts, which have absorbed 16 per cent of the $285 billion in syndicated debt raised since 2006, are the most likely to be affected by any retreat of the offshore banks, followed by infrastructure and financial services, each with 9 per cent.
Merrill says $50 billion of the $285 billion has already matured or been refinanced, with a further $6 billion due to be refinanced before the end of the year.
Beyond that, over the next 24 months $76 billion is expected to be refinanced, with the bulk to come through in calendar 2010.
"Given the current state of credit markets, the question is the extent to which banks will be positioned to continue to extend credit to these corporates as the debt matures," Merrill says.
It points out that one bank can upset an entire syndicate.
