BNZ sees credit markets opening, could use RBNZ next month

BNZ is seeing signs that offshore markets for Commercial Paper are opening up and it expects to be in a position to use the Reserve Bank's new Residential Mortgage Backed Security (RMBS) lending facility by next month if it's needed. BNZ Chief Financial Officer Ken Christie told interest.co.nz the bank had obtained longer term funds before the market closed and was in a strong position to ride out the market turbulence. "We also pre-funded 90 days ago an additional NZ$2 billion. We've been active in funding from a (longer) term perspective rather than short term," Christie said. BNZ's key measure of the maturity and type of its funding, the stable funding index, was over 70%. This measures customer deposits and longer term funding as a percentage of total loans. NAB was at 72%, Christie said. BNZ had been working hard in recent years to diversify its sources of longer term foreign funding away from a reliance on the European markets CP markets. BNZ now issued into the US and Singapore markets too. Christie said signs were emerging of a thaw. "We are starting to see a number of issuers come to the market over the last 4 or 5 days and we have seen the market opening up, and it did open up to NAB in the last week in substantial size," he said. "We have seen LIBOR rally overnight (Monday). We are seeing some of the true money market buyers, the Fidelities, the JP Morgan Asset Managers, they've been the buyers of the paper and that's been the signal to us that the market may be opening up because they are the core money market buyers who buy offshore bank CP programmes and they've been in the market buying." Like other New Zealand banks, BNZ is dependent on offshore borrowing to fund its lending here. Total loans rose 11.8% or NZ$4.6 billion over the year to NZ$43.7 billion, while retail deposits rose 8.6% or NZ$1.8 billion to NZ$22.8 billion. BNZ CEO Andrew Thorburn told interest.co.nz this difference in lending growth and retail deposit growth was neither unusual for New Zealand banks or different from previous years. "Over the longer term because of the lower savings ratio in New Zealand that deficit has had to be funded and that has been funded by a lot of banks on behalf of the economy by issuing paper overseas. That's not uncommon or recent," Thorburn said. Thorburn said BNZ was having good discussions with the Reserve Bank about the Deposit Guarantee Scheme and a possible extension to wholesale deposits. "I'm confident that refinements will be sensible and carefully thought through. As we go through the next period we've got various funding sources available to us, but we do hope that the CP market opens up and we can issue new paper into that market," Thorburn said. "If the Australian wholesale funding scheme is very different to ours, that would give some advantage to Australian issuers and that would make it more difficult to us. I do believe that the Reserve Bank is aware of that. The government is working through a sensible and careful refinement over time and I hope that will be a good outcome. * This article was first published exclusively yesterday in our daily subscription newsletter for the banking and finance industries. The email costs NZ$365 per annum and carries exclusive news and analysis for New Zealand banking and finance industry executives, regulators and investors. Sign up for a free trial here.