Retail deposits remain under bank protection

The removal next month of the Government’s wholesale funding guarantee is not expected to create any thaw for frozen mortgage funds.

Mortgage funds saw significant investor outflows in October 2008 with the introduction of the Government’s retail deposit guarantee — the Financial Claims Scheme. This guarantee will remain in place until at least next October.

Standard & Poor’s director, fund ratings, Peter Ward said there would not be significant implications for mortgage funds as a result of the removal of the wholesale funding guarantee, and that changes to the Financial Claims Scheme would be more likely to have implications for mortgage funds.

However, the removal of the Government’s wholesale funding guarantee could have some potential flow-on effects for other asset classes.

S&P fund analyst Justine Gorman said a worst-case scenario of the removal of the guarantee could see banks tighten lending terms to Australian corporate funds, which would in turn impact on profit margins.

“We have seen over the last 18 months quite a lot of capital raisings, and that could continue,” Gorman said.

“That could be the potential of the lifting of the guarantee but that’s obviously worst-case scenario.”

Gorman did note Australian banks’ relative health and ratings positions when compared to their offshore counterparts.

Colonial First State Global Asset Management's head of investment markets research, Stephen Halmarick, said the “move comes as the use of the guarantee to raise money in global markets by the banks has fallen significantly in recent months”.

“As such, the impact on bank funding costs is likely to be small.”