Banks back $4bn developers' fund Eric Johnston January 26, 2009
THE Big Four were preparing each to tip $500 million of wholesale funds into the new Federal Government-backed vehicle aimed at keeping credit flowing in the commercial property sector as some struggling offshore lenders become reluctant to refinance loans.
Bankers have given their initial backing to the planned vehicle, which could be leveraged to as much a $30 billion, saying it would ease pressure on bank balance sheets in the face of a complete dry-up of credit.
National Australia Bank chief executive Cameron Clyne said it was the "right time" for Australian banks to work with the Government to provide additional support for the economy, given the sector was well capitalised.
Mr Clyne said there was no evidence that foreign banks were withdrawing capital yet, but acknowledged "it could become a very real possibility".
Analysts have said the commercial real estate sector needs between $20-$30 billion of debt to be refinanced over the next two years.
Brokerage UBS has estimated syndicated debt makes up about a third of the total debt in the real estate investment trust sector — of that, offshore banks provide 71 per cent by value.
If Australian banks started shouldering more and more corporate loans that would normally have been funded by offshore lenders, this could start pressuring balance sheets, a bank executive said. But the new fund could be a way of easing that pressure, he said.
Under accounting rules, banks need to set aside more capital to cover higher-risk loans and commercial lending than they do for mortgages.
"The problem that the banks are facing is that there is a lot of demand out there for credit and I think they're going to struggle to provide it without having to go to the market for more capital," the banker said.
The Federal Government is expected to resume talks with the Big Four this week to finalise the structure and governance for the $4 billion fund, aimed at supporting property developers unable to roll over foreign loans.
Under the initial plan detailed over the weekend for the new "Rudd Bank", the Government will contribute $2 billion with the balance being carried by ANZ, Commonwealth Bank, National Australia Bank and Westpac.
The banks are expected either to tap existing funding reserves or wade back into wholesale funding markets to raise fresh funds for the vehicle.
Meanwhile, bankers would also provide the credit assessment oversight for the new lending vehicle.
Mr Rudd has said foreign banks represent more than half of the $285 billion in syndicated loans issued to Australian businesses since 2006.
Of these, about $75 billion is scheduled to be refinanced over the new two years.
Bankers said it was still early days, but the special purpose vehicle would operate on normal commercial terms and interest charges would be set according to usual credit risk assessments.
"Viable projects shouldn't go unfunded," said a second banker with knowledge of the new fund.
Still, some have raised concerns about whether the fund will emerge as a dumping ground for property loans that were starting to sour.
"The banks will continue to fund their good customers and anything that looks like it can't get funding will now look like it will get funding from the Government," an analyst said.
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