Borrowers still supported through crisis

The loan market in Australia is currently very active, despite the impact of the COVID-19 crisis, with borrowers seeking new bank loans to shore up their liquidity position, a key theme repeated around the world.

Banks are generally very supportive of their existing customers, backed by the view many of these strong businesses will bounce back once restrictions are lifted and some normalcy returns.

One of the challenges is banks are supporting existing relationships seeking additional liquidity and not necessarily looking at expanding their existing customer base in Australia.

Further, global banks are increasingly focussed on their home markets rather than offshore and as such there has been some evidence of pullback from offshore banks in Australia.

Much of the new liquidity being provided to borrowers to get them through this period is being provided on a short-term basis of one to two years with an expectation it will be taken out in other markets such as syndicated loans or bond markets later down the track.

"Despite the uncertainty and volatility, the underlying depth and strength of the loan market in Australia is very strong.”

Perspective

The market is also seeing a significant increase in the number of borrowers seeking consent and waivers relating to loan covenants as borrowers become concerned about extended shutdown periods and what that might mean from a business performance and therefore covenant perspective.

Loan margins are moving wider in every market and currency, although it varies by market and currency and also how significantly impacted the sector or business is by COVID-19.

As it relates to pricing, it’s clear markets globally - and it doesn't matter when it's Australia or anywhere are all in a little bit of a price discovery phase.

Timeframes to execute and close a loan are definitely extending quite considerably. Pre-COVID, it took around four weeks to launch and close a syndicated loan. In today’s market conditions, it will take probably double that time and it’s much harder to predict and manage the transaction timeline.

Appetite

Tenors on transactions have inversely contracted. Before the crisis, there was increasing appetite among banks for seven-year loans for investment-grade borrowers.

Currently, we are limited to a five-year market. And there are quite a number of instances where banks are actually pushing back even on five-year transactions and really trying to keep the tenors short on their lending to no more than three years.

What is reassuring for borrowers to understand is despite the uncertainty and volatility, the underlying depth and strength of the loan market in Australia is very strong. There is a lot of support for borrowers among banks, so I think that's a real positive, from an overall loan market perspective.

Gavin Chappell is Head of Loan Syndications – Australia at ANZ.

This story is an edited version of comments given by Chappell in an ANZ customer call in April.