Moves by Australia’s big banks to bring securitised assets in-house could ultimately force them to lift interest rates for retail and business borrowers, a bank industry insider says.
Earlier this week, NAB revealed it had brought $6 billion worth of securitised assets – bank backed debt packaged and sold to the commercial market – while a Deutsche Bank report released yesterday predicted St George Bank will have to cancel a proposed $3.5 billion securitisation and bring a further $1.3 billion back on to its books.
Most of these securities are backed by a promise from the issuing bank to buy them back if they can’t find a buyer on the commercial credit market. Despite the fact that the vast majority of this debt is well secured and low risk, the wave of risk aversion that has swept financial markets in recent weeks has seen the market for these securities dry up and left banks carrying the can.
All this may sound pretty abstract, but the bottom line is that the more banks are forced to spend to buy these securities, the less they have available to lend.
“The supply of liquidity has had a big chunk taken out of it. Banks might deal with that by rationing, but the more likely thing is you’ll see it rolling through into increased prices,” a bank industry source told SmartCompany.com.au.
“You’re already seeing the fringe players such as Adelaide Bank putting their low-doc rates up, and there’s a pretty strong argument that those sort of increases are going to roll through lots of areas of lending,” the source says.
Macquarie Bank yesterday followed the likes of Adelaide Bank, RAMS and Bluestone in announcing plans to increase rates on its low-doc home loans by 30 basis points, citing a need to pass on “significantly higher borrowing costs” to consumers.
If the credit squeeze does drive rates up, it will be despite the best efforts of the Reserve Bank of Australia. The RBA yesterday announced that it would broaden the range of credit it offers to financial markets, a move that will increase the flow of funds available to banks.
But there could be some light at the end of tunnel. According to the US Federal Reserve’s authoritative “Beige Book” survey of economic conditions, the credit squeeze is having a “limited” impact on the broader US economy, with retail sales positive, productivity up and prices remaining moderate.
After an initial spike Australian markets have steadied this morning, with the S&P/ASX 200 up 0.2% to 6261.4 at midday.