Government debt inhibiting banks' access to bond market
The rise in the cost of government debt is making it increasingly difficult for any Irish bank to access the bond market, financial sources in London said last night.
Bank of Ireland (BOI), which has already boosted its capital by more than €3bn this year, is widely seen as the institution with the best chance of re-activating the bond market and has been ready to pull the trigger on a €1bn bond raising for several weeks.
That raising has been postponed, however, as the surge in the interest rate on government debt pushes up the costs of fundraising by Irish banks and creates a bad feeling abroad around Ireland as a story.
BoI does not face a funding crisis but wants to re-finance outstanding term debt, including some of the €7.4bn that fell due in September. It has other funding options including the private placement market and the European Central Bank (ECB).
But access to the bond market will become increasingly important in the coming year as the ECB cuts longer-term lending to lend to banks and European leaders try to normalise the borrowing habits of banks.
That will coincide with the refinancing needs at BOI itself which faces a major debt maturity hurdle in 2011 that the large, liquid bond markets are best able to absorb. New figures from the Financial Regulator show borrowing by Irish based banks from the ECB increased from €20bn in September 2008 to €64bn at the start of this year.
According to Bloomberg no Irish bank has issued a benchmark bond -- a bond large enough and well traded enough to be a measure of market sentiment -- since April, preferring the safety of the ECB programme.
ECB facilities will remain available for shorter term debt, and BoI has tapped the Bank of England and US Federal Reserve as well the private placements markets this year. Longer term though, access to the bond market is the key to opportunistic funding.