By Gareth Vaughan
ASB has become the third New Zealand bank this year to issue covered bonds in Switzerland secured by New Zealand residential mortgages, raising CHF200 million (about NZ$264 million) in a six and a half year issue.
It takes the total amount raised through Swiss covered bonds by local banks to CHF1.025 billion, or about NZ$1.35 billion.
Nigel Annett, ASB's treasury general manager, told interest.co.nz via a spokeswoman the bank had raised CHF 200 million through a covered bond issue due to mature on November 2, 2018.
"The fixed (interest) rate is 65 basis points above the mid-swap rate," Annett said.
Westpac recently raised CHF325 million through a floating rate, three-year issue covered bond issue and in February ANZ raised CHF500 million through a CHF200 million floating rate, three-year issue, and a CHF300 million fixed rate, six-year issue.
The Swiss equivalent of the Official Cash Rate is currently 0% making Switzerland a cheap place to borrow money, although the New Zealand banks also face the cost of converting the money borrowed there back into New Zealand dollars.
Covered bonds are senior debt instruments backed by a dedicated group of home loans assigned to provide security for the debt known as a “cover pool.” The way they're structured means if the issuing bank defaults, the assets in the cover pool are carved off - or ring fenced - from the bank issuer’s other assets solely for the benefit of the covered bondholders.
The Reserve Bank has been consulting on proposed covered bond legislation, with submissions having closed on March 16. New Zealand banks started issuing covered bonds in 2010. The Reserve Bank has imposed, as a condition of bank registration, that banks can't encumber (use as collateral) more than 10% of their total assets to support covered bond issuance.
See more on covered bonds here.
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3 Comments
So if the $NZ drops by say 10%- 20%- as fair value would say it should- who loses? Is it ASB; or their parent Commercial Bank of Australia, or the NZ government, or NZ consumers, or the Swiss investors? I take no particular satisfaction in it being any of the above, but at some stage the penny will drop. (or the NZ$, in our case) In the meantime NZ consumers are most certainly paying interest to the Swiss, and profits to the Aussies; while the loans must certainly keep the NZ$ high (as NZ$ will have to have been bought to arrange the loan or hedge) meaing our ability to compete internationally is again eroded, and more loans will be required forever. Except that what is not sustainable will not be sustained. Why not stop it now before we are Greece, or Spain. Do what the US, UK, Europe, Japan are doing. Print money to loan to the NZ banks, to loan back to NZers. We get the interest income. And the exchange rate is not perpetually kept too high.
Simples.
Tell me why its not.
Hi Stephen L
These liabilities are hedged by cross currency basis swap trades.
I would say the trip switching from Swissy to NZD on the NZ bank legder is expensive as two legs are required. Swissy to USD to NZD.
Our local banks are the payers of the NZD/USD swap, for instance, which has been trading at historically elevated levels for a few months. - maybe Gareth could locate and publish these levels for the correct tenor if he has a bloomberg machine. Or maybe interest.co does already.
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