Overseas bank failures to impact Australian borrowers

In recent weeks there have been a number of overseas bank failures and near misses. As a result, significant steps have been taken by regulators and central banks to shore up confidence in the sector. You may have read some concerning stories in the media about bailouts and takeovers.

While Australian banks continue to be some of the strongest in the world, these overseas issues will have a local impact. Two main issues are becoming apparent that are likely to impact your loans or facilities:

1.    There will be further upward pressure on margins - While the Australian banks are well-capitalised, part of their funding comes from the interbank and wholesale markets. The debt costs in these markets have jumped dramatically in the last few days. While there are lingering concerns about the health of banks worldwide, these wholesale borrowing costs will remain elevated above normal levels. This is likely to further shift the banks’ focus towards depositors. Good news for savers, you’re likely to see even better savings rates offered. Unfortunately, this elevated cost of capital means the banks will likely pass some of this on to their borrowers through increased margins.

Potentially offsetting part of this margin increase may be a pause from the RBA and other central banks in raising the respective cash rates. This banking instability will give them some breathing room to wait a month or two in this current tightening cycle and further gauge the effect of their prior rate increases. How much of a breather will depend on the inflation and wages data being released in the coming months and also how far the banking instability contagion reaches.

2.    Non-bank lenders will face funding pressure - Many of the non-bank lenders in Australia are funded via wholesale facilities (as they generally can’t hold deposits). While they will also face the same upward pressure on wholesale borrowing rates as the banks, they may also have other challenges attracting capital. A number of the non-bank lenders in Australia have funding directly from Credit Suisse, UBS has just rescued the Swiss bank. It is possible that non-bank lenders with loans from Credit Suisse may have trouble extending their loans, which may cause some of these non-bank lenders to curtail their lending. This second-order impact is likely more difficult to identify but may cause funding challenges even for very good borrowers.

No doubt there will be more clarity in the following weeks regarding the depth of the issues in the banking sector and if this will flow on to your own facilities. If you are concerned about the availability or cost of your debt facilities and want to discuss options to mitigate your risks, please contact Darren Stacey, Partner, Debt Advisory.

Darren Stacey is an authorised credit representative 519653 of BDO Corporate Finance Ltd (ACN 010 185 725) Australian Credit Licence 24551
Your full financial needs and requirements need to be assessed prior to any offer or acceptance of a loan product.
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