Banks belatedly ride the mining wave

Australia's banks are stepping up their lending to the country's resources sector and have made their largest commitment yet. All four big banks are to be cornerstone lenders in a syndicate of 19 banks helping to fund the Roy Hill iron ore project.

Debt from domestic banks has never been a significant source of capital for Australia's mining sector, which has preferred equity finance and loans from foreign sources to drive growth. Internal sources of funding also financed much of the most recent investment phase.

Reserve Bank of Australia data shows that loans for mining rarely exceeded two per cent of all bank lending to business over the last 20 years, even during the boom years of the mid to late 2000s.

That pattern is changing.

Loans for mining accounted for 3.5 per cent of all business loans at December 2013, a shift dating from early 2011.

Lending for mining was A$26 billion at the end of last year. This figure will get a hefty increase as the big banks pick up their share of the $US7.2billion (A$7.9 billion) financing to support the Roy Hill project, which has an estimated mine life of more than 20 years.

Roy Hill clinched the financing with the support of five major export credit agencies from South Korea, Japan and the United States.

About one third of the funding is from these five ECAs, another third from banks with an ECA guarantee and the remaining third funded at risk by the commercial banks.

The willingness of the ECAs to accept less than a full completion guarantee from the project sponsors is one novelty in this financing.

A full list of the 19 banks and their allocations of the Roy Hill loan is still to be released.