Roger J Kerr thinks higher risk costs overseas will see our banks focus more on local term deposits

By Roger J Kerr

Up until two weeks ago the environment for a NZ corporate borrower to refinance existing debt or raise new debt from local banks was increasingly competitive with reducing pricing levels (lower fees and margins).

Those borrowers who took advantage of that lower market pricing in recent months should be well pleased, as the latest global market ructions will be forcing bank borrowing costs higher in international debt markets.

Already the credit spreads on traded Australasian bank debt have moved out 50 basis points as the chart below depicts.

The world is a riskier place and higher bank borrowing costs is one consequence that cannot be overlooked.

Local banks have their funding houses in order and are less reliant on global debt markets than they were up until 2008.

However, higher overseas credit spreads will encourage the banks to fund more onshore from the retail market, bidding deposit interest rates upwards.

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 * Roger J Kerr runs Asia Pacific Risk Management. He specialises in fixed interest securities and is a commentator on economics and markets. This column was written before the Monday quake. More commentary and useful information on fixed interest investing can be found at rogeradvice.com