Borrowing warning

Major banks would struggle to cope if borrowing levels recovered, the National Australia Bank has told a Senate inquiry.

By InvestSMART · 11 Aug 2012

By InvestSMART ·
11 Aug 2012

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Major banks would struggle to cope if borrowing levels recovered, the National Australia Bank has told a Senate inquiry.

NAB's chief financial officer, Mark Joiner, says Australia is still mired in the global financial crisis. He said NAB was "finding it quite difficult" to move away from safe-haven and fixed-income assets like bonds as financial market volatility continued.

Unstable sharemarkets were making investors "fearful" and encouraging them to put their superannuation into cash. He added that wholesale money market volatility and competition for deposits among major banks meant these lenders may not have funds to provide business credit in the event of a borrowing recovery.

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Frequently Asked Questions about this Article…

What did the National Australia Bank (NAB) tell the Senate inquiry about major banks and a borrowing recovery?

NAB told the Senate inquiry that major banks would struggle to cope if borrowing levels recovered. NAB’s chief financial officer, Mark Joiner, warned that ongoing market volatility and funding pressures mean lenders may not have the funds needed to support a renewed rise in borrowing.

Why is NAB finding it difficult to move away from safe‑haven and fixed‑income assets like bonds?

NAB says persistent financial market volatility is making it ‘quite difficult’ to shift away from safe‑haven and fixed‑income assets such as bonds. In volatile markets, banks and investors often prefer the relative safety of bonds over riskier assets.

How are unstable sharemarkets affecting everyday investors and superannuation decisions?

According to NAB, unstable sharemarkets are making investors fearful and encouraging them to place superannuation into cash. The uncertainty in sharemarkets is driving a shift toward safer, short‑term cash holdings for some investors.

What role does wholesale money market volatility play in banks’ ability to lend?

NAB said wholesale money market volatility reduces the reliable sources of funding for banks. Combined with competition for deposits, this volatility can limit banks’ available funds and therefore their capacity to provide business credit if borrowing demand rises.

Could competition for deposits among major banks affect business credit availability?

Yes. NAB warned that intense competition for deposits among major banks, together with money market volatility, means lenders may not have the funds to provide business credit should borrowing levels recover.

What did NAB mean by saying Australia is 'still mired in the global financial crisis'?

When NAB’s CFO Mark Joiner said Australia is ‘still mired in the global financial crisis’, he was describing the ongoing impact of international financial turmoil—manifested as market volatility and funding pressures—that is shaping bank behaviour and investor sentiment.

How might these funding pressures change banks’ lending behaviour if borrowing increases?

NAB’s comments suggest that funding pressures—from volatile wholesale markets and fierce deposit competition—could make banks more cautious about extending credit. If borrowing demand grows, banks might struggle to respond quickly because they are holding safer assets and facing constrained funding.

What should everyday investors take away from NAB’s warnings about market volatility and banking funding?

The key takeaway from NAB’s warnings is that market volatility is keeping banks and investors cautious: banks are favouring safe‑haven assets and funding is under pressure, while some investors are moving super into cash. Everyday investors should be aware that these dynamics can affect credit availability and broader market conditions.