PowerPoint Presentation by u8BO3ah


									FUNDING & LIQUIDITY                           Strictly Private and Confidential

AM Institute 2012 Business Strategy Forum - Cameron Rae
Credit markets tighten
  ■ Credit markets have tightened after recent quantitative easing's by US and
      European central banks, benign news out of Europe and better than expected
      US economic data.
  ■ New debt issue launched in January 2012 have performed well in the
      secondary market
  ■ While the recent trend has been positive we still expect volatility during 2012.
  ■ “I think the only thing which is certain, is that uncertainty is likely to persist
      for some time to come.” – Guy Debelle, RBA Assistant Governor 14 Feb 2012
  ■ Overall borrowing costs will still remain at long term highs
  ■ Covered bonds initially well received in the domestic market giving major
      banks another alternative
  ■ Will this take pressure off domestic term deposit rates?

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Australian Credit Index is at widest levels since July 09

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Credit Spreads on the improve

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Performance may drag domestic borrowing cost in

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Term deposits rates are still historically high

                        Major Bank      Large Regionals   Rated Mutuals         Small Mutuals

                            AA             A-/BBB+         BBB+/BBB                 Unrated

      Term Deposits        120              120+              120+                    120+

          NCD’s             0               15-30            30-50                     75+

     Senior Unsecured
                            90               200              200+                    250+
         (3 Year)

        Sub Debt           275               400              475*                   550+*

       RMBS Senior         140               140              140+                    140+

       RMBS Junior         450               450              450*                    450**

      Covered Bonds        130               N/A              N/A                      N/A

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Bank issue margins have been dragged out with global pressures

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Term deposit competition will remain high

  ■ Term financing remains difficult
  ■ Scenario analysis ADI’s motivated to increase exposure to retail deposits
  ■ Lower run off assumptions can be made on retail deposits
  ■ Major banks still remain very active offering historically high TD rates and we
     don’t see that changing in the near future – paradigm shift.
  ■ Smaller ADI’s will begin to look at funding alternatives where possible to
     defray the significant increase in borrowing cost
  ■ APRA have begun focusing on operational risk where added sophistication is

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APRA are looking at operational risks and requesting higher standards

  ■ HQLA beneficial ownership
  ■ Austraclear
  ■ RITS Membership – Repo Capability
  ■ Internal Securitisation

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Scenario Analysis ADI’s
APRA is bringing more sophisticated reporting requirements to mutuals

  ■ Liquidity Coverage Ratio (LCR) – ADI’s are required to maintain an
     adequate level of unencumbered, high quality liquid assets to meet
     their liquidity needs for a 30 day period under a significantly severe
     stress scenario. The value of LCR must not be less than 100%
  ■ Stock of high quality liquid assets
     Total net cash outflows over the next 30 days      >100%
  ■ MLH ADI expected to have scenarios for “going concern” however
     those shifting to Bank status of taking wholesale funding may be
     required to run scenarios for stressed environments
  ■ Prescribed run off assumptions in Draft APS 210 release November

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Draft APS 210

  ■ Removal of clause b) from the current standard which states "securities
     eligible for repurchase transaction with the Reserve Bank" as a generic catch
  ■ Removal of the explicit requirement for bank bills and CDs to be at least
     investment grade from clause c)
  ■ Explicit inclusion of debt securities issued by supranationals and other foreign
     governments as HQLA
  ■ Combination of debt securities with a credit rating grade 3 or lower (long-
     term mapping of BBB+) to form no more than 20% of the MLH of an ADI
  ■ Debt securities (including CD’s) held must be eligible for repurchase
     agreement with the RBA
  ■ An explicit operational requirement to ensure the ADI has the capacity to
     liquidate securities held within two business days

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RBA Repo Criteria
The Reserve has made changes to the eligibility criteria

  ■ NCDs are now required to have a public credit rating to be repo
     eligible - Unrated NCD programs are no longer repo eligible
  ■ Reduction of the minimum long-term credit rating from A- to BBB+ for
     repo eligible debt securities
  ■ Removal of the requirement for the issuing ADI to be
     an exchange settlement holder with the RBA.

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The mutual sector is actively pursuing its alternatives

  ■ Move to Bank status
  ■ Credit ratings
  ■ Short term wholesale debt programs
  ■ Non HQLA strategies where liquidity allows

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Basel III is putting more emphasis on the quality of capital

  ■ Lower Tier 2 still achievable
  ■ No step us or inducements to call
  ■ Region Bank secondary Market - BBSW + 400
  ■ ANZ Listed - BBSE +275
  ■ New issue Mutual BBSW + 450 and beyond
  ■ WBC Listed Tier 1 – BBSW +325
  ■ No implied credit support under Basel III
  ■ Member share programs?

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Managing Director - Laminar Group


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