The Q&A session of Tuesday’s speech by RBA Assistant Governor, Guy Debelle, contained an interesting tid-bit on bank offshore borrowings, which Debelle believes will not grow from their current level, and might even fall slightly, over the foreseeable future:
Certainly, Debelle’s comments that bank offshore borrowings have peaked are backed-up by ABS data, which shows almost zero growth since the onset of the GFC, with the size of offshore borrowings relative to both total liabilities and loans falling over this period (see next chart).
The composition of the banks offshore borrowings have also changed recently, with some bond issuance replaced by foreign deposits (see next chart).
Were Debelle’s predictions of no growth in bank offshore borrowings prove correct, it has implications for the banks’ ability to fund increased mortgage lending and house prices. As shown by Houses & Holes recently, bank deposit growth is falling, meaning that the banks might soon be unable to expand their mortgage book without seeking additional funding from offshore.
Perhaps this is why Debelle last month threw caution to the wind and suggested the banks should look to ramp-up their offshore wholesale borrowings, as without this source of funding, the current housing recovery could be stifled, laying to waste the RBA’s plan for housing to fill the void left as the mining boom unwinds.