Prime Minister Kevin Rudd and Treasurer Wayne Swan have promised that the Government will act if foreign banks start to pull out of Australia and big companies are unable to roll over billions of dollars in loans.
About $75 billion of corporate debt falls due over the next two years and Australia’s big four banks are worried about what may happen if foreign banks decide not to roll over these loans and reduce their exposure to the Australian market.
The flow-on effects could be devastating. Companies would be forced to start selling assets en masse, potentially flooding the market and driving down prices. This would result in companies posting huge losses, sacking staff and potential corporate collapses.
But the Government appears ready to step in and act as a sort of lender of last resort if the foreign banks pull out.
The emergency measures would likely involve Government effectively lending directly to businesses via a special-purpose vehicle, as it has done for the car industry.
“If foreign banks do not roll over their share of these loans, it would be difficult for Australia’s four major banks to fill the gap on their own,” Rudd said yesterday.
Swan says the flow of credit remains adequate, but has promised to act if necessary.
“It’s not required at the moment, but should that gap open up, action will be taken and we will announce it at that time.”
The commercial property sector is likely to be one of the hardest hit by any foreign-bank pullout, as it has around $50 billion in debt to be rolled over in the next two years.