Short-term wholesale flows OK

Banks have satisfactory access to the short-term debt market for now, even as wobbles in emerging markets unsettle financial markets generally.

Sean Keane, of Triple T Consulting, wrote in his bulletin for Credit Suisse on Friday that "it has become very noticeable in recent days that the level of enquiry about the risk to Australian bank funding has substantially increased."

"Given the geographic dispersion of the source of these enquiries there is little doubt that investors all around the world are now mulling the risks to banks down under.

"The concern being expressed by overseas observers is that the sharp outflow of funds that have been exiting Asian emerging markets has the potential to spill over into Australia, triggering disinvestment and the non-renewal of existing funding contracts."

"They fear a re-run of past crisis events... [when] Australia's reliance on offshore market access... [will again threaten] the banking system's ability to fully fund itself."

Keane note that "at this stage the wobble in Asian markets, and the weakness in the Australian dollar, does not appear to be causing Australian banks any particular difficulties.

"Indeed local banks still report reasonable amounts of reverse enquiry, with overseas investors looking for the Australian banks to issue out to one year, usually at sub-Libor levels.

"In recent days the actual yield that the banks are paying on these contracts has had to rise in line with the relatively small rises in the overall market." This follows the US Federal Reserve's outline of its plans to wind back the extent of its monetary stimulus.

"There hasn't been any attempt at large scale term debt issuance this week, so we cannot say for certain what the reception would be like from investors," Keane wrote.

"But in all likelihood Australian banks still remain amongst the group of preferred global counterparts, when investing in the financial sector."

Finally, Keane observed that "the funding position of Australia's banks is clearly much better than it was five years ago... All of the banks have substantially reduced their reliance on the short-term offshore markets."

"In addition to this the Australian banks also have the ability to self-securitise their largest balance sheet asset - their mortgage book - and to repo it with the RBA for cash funding.

"Whilst this won't be the cheapest funding option for them, it does give the banks a backstop guarantee that funding is there if they absolutely need it."