Peter Verwer |
Monday, 3 August 2009 12:01 AM |
3 Comments
“Show me the money” is a familiar refrain around property industry boardrooms.
There are few kind words for Australia’s big four banks which, despite the boon of the Federal Government’s bank guarantee, continue to ration capital, hike interest charges and tighten loan conditions.
Commercial property lending has been a huge and profitable business for banks for the past few years. These banks are now seen as fair weather friends.
In their own defence, the banks cite the high cost of securing international debt. They also point to their willingness (to date) to manage their property loan books rather than spark an early 1990s-style fire sale.
The strategic issue is the future of capital in Australia, which is why calls for a follow-up to the 1997 Wallis report into Australia’s financial system make sense.
Australia needs a plan to foster deeper and more diverse sources of long-term capital.
In a recent BRW article, Property Council national president, Daniel Grollo, noted that the Federal Government’s stimulus packages are delivering dividends.
Economic growth is stable, if patchy, and Australia’s jobs markets have skirted the meltdown that blights other countries.
Above all, Australia has avoided the spirit-sapping crisis of confidence that typifies most of our trading partners.
However, Grollo says we can’t continue to rely on publicly funded financial transfusions.
A more traditional balance between private business investment and government spending needs to be restored. This means increasing the credit supplied to businesses, including the property investment and development sector.
Despite talk of green shoots and significant equity raising activity over the past few months, new private business spending remains weak.
The rationing of fresh investment funds will dampen job growth as we enter a new phase of the global financial crisis, where listless economic fundamentals may lead to a second liquidity crisis.
Global capital markets remain dysfunctional and it’s clear that Australia’s big four banks don’t have the capacity to provide the credit growth required to sustain an economic recovery.
At the same time, we need to better rate the risks associated with debt. We need to inject more science into the capital adequacy risk assessments applied by the banks themselves and regulatory authorities to different categories of lending.
A top priority is to re-open Australia’s mortgage securitisation markets, following the example provided by the US and Canadian Governments.
These governments guarantee high quality, asset-backed securities as a supplement to guaranteeing banking institutions themselves.
In doing so, US schemes such as the Terms Asset Backed Securities Loan Facility (TALF) accelerate the velocity of capital available to the market.
A deep and stable mortgage securities market could also allow the staged unwinding of the bank guarantee that has frozen out smaller lending institutions.
Many see huge opportunities for institutional investment in real estate-backed debt. In North America, such debt vehicles are an asset class in their own right.
Whether Australia also needs its own version of a US-style Troubled Assets Relief Program (TARP), to package up poor performing commercial property assets, is open to debate.
In the interim, the Federal Government could level the funding playing field for the regional lenders and big four banks with a low, flat pricing of its guarantee – the fee for lending its AAA credit rating. Such a move would improve the competitiveness of smaller banks, building societies and credit unions without penalising the majors.
The Federal Parliament should also reconsider and pass the Government’s Australian Business Investment Partnership (ABIP) legislation.
ABIP was conceived as a contingency plan that could be mobilised should foreign banks exit Australian debt syndicates.
The ABIP proposal is like an IT back-up program that injects confidence even if it is never activated.
Given the increasing pressure on foreign banks by their new owners – foreign governments – to re-focus on their domestic markets, the rationale for ABIP is as powerful as ever.
Once passed, ABIP could evolve to address velocity of new capital issues in addition to rollover funding.
Peter Verwer |
Monday, 3 August 2009 12:01 AM |
3 Comments
