Due to the Maturity of Covid-Era Loans, Australian Banks May Turn To Debt Markets

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According to a report by the Asia Pacific Lenders Association, Australian banks may soon tap debt markets to raise capital and repay government-backed COVID-19-era loans.

In January 2021, the association reported that the region’s aggregate debt raised by lenders had risen nearly threefold compared with December 2020.

According to S&P Global Market Intelligence data, “Aggregate debt raised by banks in the region rose to US$23.22 billion in January from US$8.45 billion in December 2022 and US$17.73 billion in January 2022.”

Multiple billion-dollar debt sales by Australian banks and Sumitomo Mitsui Financial Group Inc.‘s US$5.80 billion loss-absorbing capacity note issuance drove the total debt raised.

Banks’ equity-raising activities were subdued in January 2021 as rate hikes and geopolitical tensions continued to cloud the growth outlook for the region. As a result of the overall economic uncertainty, banks have preferred to tap the debt market to raise capital rather than rely on issuing equity shares.

In January 2021, only four Southeast Asian banks opted to tap into the equity capital markets, raising a total of US$606.7 million. These were among the few banks in the region to show confidence in the equity markets despite ongoing economic uncertainty resulting from rate hikes and geopolitical tensions.

Australian banks raised over US$7.5 billion via debt security sales in January as they sought to pay back COVID-19-era loans granted by the Reserve Bank of Australia.

National Australia Bank Ltd., Westpac Banking Corp., ANZ Group Holdings Ltd., and the Commonwealth Bank of Australia are expected to raise over A$120 billion in 2023 to repay their share of the A$200 billion in three-year loans extended to lenders by the Reserve Bank of Australia during the COVID-19 pandemic.

In Australia, bankers have expressed confidence that their lending institutions will be able to repay these loans in full when it comes time due.

Ultimately, it’s clear that accessing additional funding sources will be critical for Australian banks as they look to pay down their COVID-19 debts and remain competitive in an ever-changing economic environment.

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