SYDNEY (Reuters) – Australian banks are profiting from ample cash throughout the coronavirus pandemic – pushed by authorities wage subsidies, capital raisings, and better particular person deposits – to repay their debt as a part of a long-held drive to bolster funds. Because the economic system advantages from fiscal and financial stimulus, firms elevating capital to safe stability sheets have deposited extra funds at banks, whereas staff have moved retirement financial savings into cash early. This has allowed Australian banks to fund loans with much less debt whereas driving bank funding prices decrease – which helps offset the hit to earnings from falling yields. The deposits within the nation’s banks grew practically 12% to a report A$2.29 trillion ($1.65 trillion) within the 12 months to June 30, official knowledge exhibits, whereas loans solely elevated 3% in the identical interval, creating extra liquidity. “The banks are flush with cash,” mentioned Brad Scott, head of debt capital markets at Bank of China in Sydney. Within the 4 months because the COVID-19 outbreak, banks have collected about A$145 billion of extra deposits, and about A$95 billion of extra pricey time period debt has been repaid, in line with Citigroup Inc. On the Commonwealth Bank (CBA.AX), which funds one in each 4 residence loans within the nation, 74% of the bank’s loans have been funded by deposits within the 12 months to June, up from 69% a 12 months earlier, whereas smaller friends are additionally counting on much less debt for funding, their accounts present. Unusually, the massive 4 banks, which maintain over 80% of all deposits, haven’t needed to situation senior bonds since February. Ample demand amidst the dearth of issuance from huge banks is pushing their credit score spreads over the benchmark charge to close report lows. Banks would solely have to supply about half of the 80-to-90 foundation level unfold traditionally provided to situation 5-year debt, primarily based on secondary bond costs. “If they were to issue a bond, notionally they would price around that level, the question is whether they do need that money (at all), even at the cheaper level,” Scott added. Banks even have entry to an additional A$154 billion three-year funding facility priced at solely 0.25% from the central bank. Buyers in the meantime are shopping for bonds from non-financial corporations like native retailer Coles Group (COL.AX) and electrical energy distributor Ausgrid to safeguard stability sheets, which in flip find yourself as deposits at banks. General, analysts say the large liquidity, mixed with the low funding charges, are a internet adverse for banks as a result of they aren’t incomes a lot out of the cash. It’s “only a small benefit because the available spread on those deposits is shrinking,” mentioned Matthew Wilson, a senior banking analyst at Evans and Companions. For a graphic on Australian banks’ stability sheet dynamics: right here Reporting by Paulina Duran in Sydney; Enhancing by Ana Nicolaci da CostaOur Requirements:The Thomson Reuters Belief Ideas.