Australian banks have started selling syndicated corporate loans for the first time, seeking to relieve funding pressures and tap the $1.4 trillion Australian pension sector’s rising appetite for fixed income.
The top four banks – National Australia Bank, Commonwealth Bank of Australia, Westpac Banking Corp and Australia and New Zealand Banking Group – control more than 60 percent of the annual A$160 billion ($166 billion) corporate loan market and have plenty of loans to sell.
Banks have traditionally kept high-quality loans to Australia’s corporates on their books, but are facing both a $100 billion annual funding shortfall and tougher global bank rules on capital requirements.
“These assets when sold will take some funding pressure off the banking system and free up banks’ lending capacity,” said Steve Lambert, NAB’s executive general manager for Capital Markets.
Bankers and analysts estimate selling corporate loans to funds could raise $20 billion a year for the banks within two to three years if the market takes off.
NAB, the biggest business bank in the country, has set up a new fund, Metrics Credit Partners, to package and sell corporate loans. The fund, which will be led by three of its senior loan bankers, has a A$1 billion loans portfolio from NAB and is looking to raise A$3 billion from other fund investors.
Metrics would own and service the loans, but sell units in the fund to investors, giving them access to a fixed income stream without having to own the underlying assets.
Australian pension funds, traditionally heavy in more volatile equities, already have been lining up to buy bonds, infrastructure debt and leveraged buyout debt to diversify their portfolios.
“We see the Australian loans space as being extremely attractive, particularly areas where we have a focus,” said Bob Sahota, head of fixed income at Challenger Financial, which manages A$31 billion in funds.
Challenger, which would potentially be both a buyer from the banks and a competitor in originating loans, was also looking for opportunities in the loan market for co-investment partners such as superannuation funds AustralianSuper and HESTA, as well as Government of Singapore Investment Corp, Sahota said.
“The European banks are pulling out and the Australian banks are staring at higher cost of funding. There are extremely good deals to be done,” he said according to Reuters.