Australian banks take Samurai stance

Major Australian banks have been issuing so-called Samurai bonds in the Japanese market to protect themselves against the disruption caused by the global credit crisis.

An Assistant Governor of the Reserve Bank, Guy Debelle, confirmed this today, in a speech he gave to the Credit Summit in Sydney.

Mr Debelle, who has special responsibility for financial markets, said that the financial sector had driven much of the growth that had occurred, over the past year, in the stock of non government bonds.

“Banks have been tapping new sources of funds and diversifying their issuance across different markets,” Debelle said.

“A significant share of bond issuance in the March quarter was in the form of extendible bonds in the US through private placements.

“Each of the major banks has also recently tapped the Japanese market by issuing so-called ‘Samurai’ bonds for the first time.

“This enabled the banks to issue bonds at longer tenors (typically five years) than those issued in the US in early 2008,” Debelle said.

He said the stock of non government bonds had “increased markedly” over the past year.

“Australian banks’ bond issuance has been very strong, particularly in the first half of 2008,” Debelle said.

He said this had totalled $67 billion, in that time.

That was well above the average $32 billion raised in the same part of the previous financial year.

“The strong bond issuance reflects the re-intermediation that has taken place during the credit market turmoil, with banks undertaking a larger share of financing for the non-government sector,” Debelle said.

“In part, the issuance by the banks has also been precautionary in case the dislocation in credit markets was to worsen,” he added.

“The major banks are generally ahead on their funding plans.

“The issuance has been more than enough to meet the banks’ asset growth and maturation of existing issues,” Debelle said.

Over two-thirds of the banks’ bond issuance has been offshore and denominated in foreign currencies, particularly US dollars and euros.

“The choice of funding location primarily reflects cost considerations and the ability to tap long-standing buyer relationships.

“Earlier in the year, there were concerns that investors would have difficulty ‘digesting’ further offshore issuance, but this has not been borne out.

“Investor demand for bank paper (onshore and offshore) has been strong, with most recent issues oversubscribed, Debelle said.

more at www.rba.gov.au