ANZ in first domestic bond issue by a bank for nearly a month, raises NZ$125 mln in seven-year issue

By Gareth Vaughan

ANZ New Zealand has become the first domestic bank to tap the local bond market in almost a month, raising NZ$125 million in a seven-year retail issue late last week.

ANZ priced the bonds at 180 basis points over the swap rate, meaning they'll pay investors' 6.08% per annum. Investors' have to stump up a minimum investment of NZ$10,000. ANZ is offering 6% for its regular 5 year term deposits. See all term deposit rates here.

It's the first domestic bank bond issue since a Rabobank NZ$200 million, four-year issue priced at 112 basis points over the swap rate on August 24. Before that, the last issue was a NZ$300 million, three-and-a-half-year floating rate BNZ issue in July at a margin of 120 basis points.

The ANZ bond issue came as Reserve Bank Governor Alan Bollard warned that tightening in international funding markets highlighted the risk that the cost of longer-term funding might increase for New Zealand banks, leading to increased interest rates for customers even if the central bank leaves the Official Cash Rate at 2.5%.

However, Bollard pointed out that although the indicative cost of international long-term funding has increased materially for New Zealand banks, actual bank funding costs had thus far been largely unaffected.

“New Zealand banks are currently well funded and have not needed to issue term debt recently. Nonetheless, if conditions do not improve, bank funding costs will eventually increase," Bollard said in the Reserve Bank's Monetary Policy Statement.

With weak lending growth there's little pressure for now on the banks' funding. The Reserve Bank's latest sector credit data shows agriculture debt down 0.9% in the year to July to NZ$47.316 billion, business debt up 0.9% to NZ$71.841 billion and total household claims up 1.2% to NZ$184.234 billion.

The big banks are all sitting on billions of dollars worth of liquid assets such as cash and the likes of treasury bills, government securities, residential mortgage backed securities, bank bonds, and call deposits with the Reserve Bank that they should be able to quickly convert into cash if required. See more here.

Aside from Bollard's comments, the ANZ bond issue also came against the backdrop of the European Central Bank revealing coordinated intervention with the Bank of Japan, the Bank of England and the US Federal Reserve to lend unlimited amounts of three month US dollar funds to European banks as that continent's sovereign debt crisis rumbles on.

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