Daily Flows & Insights – APRA Proposal Shakes Mutual Sector

Daily Flows

  • Market Participants are still seeing value in the recent Bank Australia issuance, picking it up in the secondary at a discount margin of +126.
  • Today, Suncorp has launched a 3.5 year senior issuance with initial guidance of +113. It will be interesting to see if uncertainty regarding APRA proposal will affect the volume of this issuance.
  • NCD margins are hovering at +48, with bespoke offerings of +50 appearing here and there to attract.

APRA Proposal Shakes Mutual Sector

  • Yesterday APRA released their proposal on changes to liquidity standards in light of recent global events.
  • APRA aims to ensure smaller Australian lenders value liquid assets on a mark-to-market basis, similar to larger banks, and will restrict certain types of funding as “liquid.”
  • Under the proposed changes, bank bills, certificates of deposits, and debt securities issued by other banks will no longer be considered eligible liquid assets for smaller banks.
  • The changes could increase funding costs and reduce earnings for credit unions and mutual lenders, as they may need to replace debt securities with lower-yielding government bonds or seek alternative funding sources.
  • The mutual sector is a key part of the system and ensures community-based customer driven banking is available to consumers. It is interesting to see the Federal Government keen on preserving competitiveness in the banking system to protect the consumer yet potential introductions from APRA threatening that.
  • The changes are almost paradoxical as it leaves MLH regulated banks to increase holdings in mostly fixed securities, increasing interest rate risk exposure, the exact issue that was at the heart of the SVB collapse.
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Curve Team
Jack Pedersen