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BNZ CFO Adrienne Duarte on how the bank's avoiding a NAB group Australia versus New Zealand funding debate

Posted in Bonds

By Gareth Vaughan

BNZ chief financial officer Adrienne Duarte says she's keen to see the bank, which has borrowed more money through covered bonds than any other New Zealand bank, create more covered bond capacity to hold up its sleeve for use in any potential future crisis.

She also says BNZ's "funding independence" helps it avoid an Australia versus New Zealand funding debate with its parent National Australia Bank (NAB).

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7 Comments

Will this not make depositors

Will this not make depositors at the BNZ even more exposed to OBR?
 This is a bank with a Loan to deposit ratio of %160 , locking more good mortgages up in covered bonds and leaving depositors in an OBR event getting, most likely very little.

Q, who is more liquid

Q, who is more liquid however?
The depositor?
the shareholder?
or the bond holder?
ie a depositor can withdraw or move money in minutes, hours? while the covered bond holder cannot?  however the bond holder has some sort of guarantee.
The shareholder takes days if not weeks to sell shares?
Whos really left hanging out to dry? assuming the depositor isnt asleep?
Lets say things start to go pear shaped, it would take some weeks if not months for a trend to become obvious? ie house prices dropping, plus other leading data? 
So a switched on depositor has the opportunity to bail surely?
Either way, the depositor is taking a profit and hence is an interested aprty and should indeed bear some risk and cost, unlike the tax payer IMHO.
regards
 

Steven , Im more worried

Steven , Im more worried about the 190 billion of  overseas debt. If our banks are still dependent on short term foreign debt, we could go like Turkey, Brazil or India where interest rates were lifted to %10 to stop  foreign investors fleeing.  In that situation the shock could be short, sharp and lethal.

Steven's point would be valid

Steven's point would be valid except that many depositors will be fixed term deposits of 1, 2, 3 year duration and so cannot withdraw their cash on demand. Also these credit events happen slowly at first but then rapidly accelerate out of control.
 
I'm with you Andrew, I think the RBNZ is derelict in its duty in allowing covered bonds. However, it probably makes no difference in a real credit event as all the money will already have been taken by the derivative counterparties anyway. I assume the RBNZ have actually looked at what really happens in the real world when something like MF Global collapses. They have haven't they? Er, I hope so. Surely.....

Andrewj, you mean $220billion

Andrewj, you mean $220billion in total household debt, supported by $120billion in Household savings, $16billion in kiwisaver,  and $119billion in other financial assets.
The overseas debt is mainly in bond issues where there is already plenty of incentives. Tax free on the interest earned and now zero levy from 2% levy(approved issuer levy).

You forgot, farm,business

You forgot, farm,business debt and student debt. The 120 billion in household saving is simply misleading.
 
http://www.johnpemberton.co.nz/html/total_debt_.html
 
 

Shifting the focus to the asset side
Nonetheless, while New Zealand compares quite well in terms of the magnitude and composition of our gross external debt, our position as a net international debtor instead highlights our weak international asset position. This is illustrated by our comparatively high leverage ratio (ie, ratio of gross external liabilities to gross external assets) which, at close to two, is amongst the highest in the OECD
 
http://www.treasury.govt.nz/economy/mei/jan13/03.htm
 
 We shouldn't be on this  graph, we are not a big enough hitter
 
http://www.businessinsider.com/g10-countries-by-total-debt-to-gdp-2011-12

When markets started to worry

When markets started to worry about Portugal, Ireland, Spain and Greece, they all had 

foreign net debt roughly around 100 per cent of GDP. Whether that foreign debt was 

mainly due to the government as in Greece or the private sector as in Spain did not 

matter too much. Investors had concluded that in times of crisis and uncertainty both 

sectors could no longer be neatly separated. That’s why spreads on Spanish government 

debt rose quickly despite the Spanish government being less indebted than supposedly 

safer Germany.  

 

Across the industrialised world, there is one country that shows a debt profile similar to 

the  so‐called PIGS  countries,  and that is  New Zealand. Over the past decade,  New 

Zealand’s total overseas debt has risen steeply. In December 2000, it stood at 109 per 

cent of GDP. Ten years later total debt had reached 132 per cent, while NZ net debt 

stood at 85 per cent of GDP.  

 The biggest difference between New Zealand and the PIGS is the relatively low extent

of government debt. At 25 per cent of GDP, it is way below the debt levels seen in other

countries. This does not mean, however, that Kiwis  could relax about their financial 

vulnerability. Far from it.  

 

 

 

The similarities between Europe’s southern periphery and New Zealand go further than 

macroeconomic  indicators.  The  underlying  problems  of  the  Greek  and  Portuguese 

economy were a government sector that had become too large, steadily growing welfare 

states and poor productivity growth for decades. Admittedly on a different scale, these 

developments can also be observed in New Zealand.  

 

In New Zealand, government now accounts for about 45 per cent of the economy – a 

full ten percentage points higher than in Australia and more in line with big European 

welfare states. It is telling that in the last four years, when the Kiwi economy virtually 

stood still, there was only one component of GDP that recorded a positive growth, and 

that was government consumption.  

 

 

http://nzinitiative.org.nz/site/nzbr/files/438%20Web.pdf