After securing NZ$240 million through a senior bond offer, the BNZ has now raised a total of NZ$790 million of funding in the domestic market over the past couple of months.
BNZ closed a five-year senior bond offer on Friday raising NZ$240 million. In a rare move, it offered to pay brokerage fees to institutions and financial intermediaries as it sought to attract retail investors. It is another sign of the strong demand by banks for retail funds as they seek to meet Reserve Bank rules on core funding.
The offer had been seeking NZ$100 million plus oversubscriptions. It’s paying interest at 160 basis points over the five-year swap rate, or 6.165% per annum.
The BNZ declined to say exactly how much retail money the offer had attracted, only that it was a “healthy” level.
Retail money is a sensitive subject for the major banks following the April introduction by the Reserve Bank of the core funding ratio (CFR).The CFR requires banks to fund 65% of their loans from either retail deposits or long-term wholesale funding with maturities of more than one year. The Reserve Bank is aiming to reduce New Zealand banks' reliance on ‘hot’ international wholesale money markets following the Global Financial Crisis and wants to increase the CFR to 75% by mid-2012.
The BNZ’s five-year bond issue closely follows a two year senior bond issue that raised NZ$125 million from institutional investors. It carries a floating interest rate at 95 basis points over swap. It’ll pay an initial rate of 4.25% per annum.
And the two senior bond issues come after the BNZ became the first New Zealand bank to issue covered bonds in June, raising NZ$425 million from domestic institutional investors.
Both Westpac and ANZ are also eyeing issues of covered bonds, which are debt securities backed by the cashflows of mortgages written by the banks.
Covered bonds are banned in Australia because covered bond investors have a priority claim on the mortgages the bonds are secured by, effectively ring fencing security on the bank's balance sheet. This means in the event of a default by the bank issuer, depositors’ claims are diluted.
However, the Reserve Bank says banks here can issue covered bonds worth the equivalent of up to 5% of their total assets.
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