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The viability of Australian banks’ high reliance on offshore funding has come under scrutiny in the face of rising home loan rates.
Cameron Clyne, CEO of NAB, told The Australian Financial Review today, that rather than debating banks’ mortgage rates, the country should be looking at the “bigger strategic issue” of domestic banks’ funding models.
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Australian banks have long relied on foreign debt to fund their businesses, with the highest reliance on wholesale funding and the smallest deposit bases of any other comparable countries in the world, the daily said.
According to Citigroup the loan to deposit ratio of Australia’s banks sits at 153 per cent, compared to 144 in the UK and 110 in the US.
With the credit squeeze driving up the cost of wholesale funds banking chiefs and analysts are questioning the feasibility of this model.
“We are reliant on the willingness of others to lend to us,” Mr Clyne said.
“Domestic demand for credit significantly exceeds our capacity to save.”
