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   Australia Widens Lender Aid After Slamming Big Banks

   Australia’s government plans to bolster assistance for smaller lenders after criticizing three of the nations’ four largest banks for raising interest rates at a faster pace than policy makers.

   The Australian Office of Financial Management, the government’s debt manager, is seeking to invest in a series of separate mortgage-backed bond sales by an individual lender, it said today in a statement. The AOFM called for proposals from lenders interested in accessing such funding.

   “This ‘pipeline funding’ approach will be available to lenders who have been largely or wholly reliant on securitization markets to fund mortgage lending. It will provide them with greater funding certainty and so a greater capacity to compete in mortgage lending,” the AOFM’s statement said.

   Prime Minister Kevin Rudd will ensure “competitive pressure” is placed on Australia’s so-called Big Four lenders, Treasurer Wayne Swan said yesterday. Smaller lenders lost market share to Australia & New Zealand Banking Group Ltd., Westpac Banking Corp., Commonwealth Bank of Australia and National Australia Bank Ltd. since the U.S. subprime collapse shuttered global credit markets.

   National Australia, the country’s third-biggest mortgage provider, was alone among the four in raising its variable rate by 25 basis points, matching the size of the Reserve Bank of Australia’s increase on Dec. 1 to the benchmark cash rate. Commonwealth, Westpac and ANZ raised rates by between 35 and 45 basis points. A basis point is 0.01 percentage point.

   Sales of mortgage-backed bonds, which are used more heavily by small bank and non-bank lenders for funding, slumped in 2009 to A$10 billion ($9.15 billion) at Oct. 28, after exceeding A$60 billion in 2006, according to Standard & Poor’s.

   Competitive Pressure

   “The Rudd government understands the need to keep competitive pressure on the big banks,” Swan said in a weekly economic note.

   Australian lawmakers said Nov. 30 they would double the government’s investment in mortgage-backed bonds to A$16 billion to stoke competition amongst loan providers.

   The AOFM’s statement today explains how it plans on spending the second A$8 billion.

   The program also will now seek to support small business and bond sellers will be “encouraged” to allocate some of the proceeds to small business lending, the AOFM said.

   The government will only invest in AAA-rated, Australian- dollar denominated bond sales, with interest-only loans capped at 50 percent of the initial loan pool, according to the statement. Low-documentation loans are acceptable but lenders must meet extra requirements.

   Flexible Approach

   Lenders wanting a single investment can approach the government at any time rather than answering a request for proposals, the statement said.

   This so-called reverse enquiry approach will “provide more flexibility to arrangers and issuers,” the statement said.

   Australia’s four biggest lenders increased their combined portion of new owner-occupier mortgages to 81 percent in July from 60 percent as of mid-2007, the Reserve Bank of Australia said Sept. 24

   http://www.bloomberg.com/apps/news?pid=email_en&sid=aGgHma7S_8_A

   Monday, December 7, 2009 at 9:04 am | Permalink

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