You are here

Australian banks show mettle as bond risk falls amid stock slump

Wednesday, June 22, 2016 - 08:55
38246853 - 02_05_2016 - NAB-RESULTS_.jpg
Investors in Australian bank bonds are showing confidence in the ability of lenders to weather the risks that have whipsawed global markets this month.

[SYDNEY] Investors in Australian bank bonds are showing confidence in the ability of lenders to weather the risks that have whipsawed global markets this month.

While Aussie bank equities have taken a hit amid uncertainty about the UK's place in Europe and US interest rates, the cost of insuring debt of the country's four major lenders has fallen.

The average for their credit-default swaps, which protect against non-payment of debt, has declined 9 basis points this month to 79 as of Tuesday, CMA data show. The S&P/ASX 200 Banks index has dropped 4 per cent over the same period.

Bond buyers are betting rising bad debts for banks or a housing market shock would take a toll on lenders' dividends and equity capital rather than imperiling creditors.

Australia & New Zealand Banking Group, Commonwealth Bank of Australia, National Australia Bank and Westpac Banking Corp raised a combined A$20 billion (S$20 billion) in capital in 2015 to meet stiffer regulation requirements and also haven't increased interim dividends to stockholders this financial year. That hasn't happened since 2008.

"Australia's largest lenders are low risk, back by a AAA rated sovereign, and offer attractive yields for international investors grappling with zero to negative rates," said David Ellis, a Sydney-based analyst at Morningstar Inc.

"The record amounts of capital they raised last year have strengthened their balance sheets further. For equity investors the risks are rising with pressure on dividends and profits."

BLOOMBERG