Guarantee brings Canberra $1.2bn

Updated federal budget figures released yesterday forecast a $358 million increase in fee revenue from the guarantee scheme.

Some of this increase, however, includes fees paid by state governments to access a AAA-credit rating in the face of credit market volatility.

In May, the Government forecast it would receive as much as $900 million in annual revenue from charging banks for the use of its rolled-gold credit rating.

As well as domestic banks, international banks with branches based here can access the scheme.

By mid-September 2009, banks had raised $143.9 billion under the guarantee scheme, compared with $104 billion in May. The updated figures were contained in the Federal Government's Mid-Year Economic and Fiscal Outlook.

Australian banks have been weaning themselves off the government-guaranteed bonds, particularly in the domestic market where pricing for non-guaranteed bonds has fallen substantially.

Indeed, there was no guaranteed issuance by Australian banks in the domestic market in October and only $US1.1 billion of guaranteed issuance offshore.

National Australia Bank chief executive Cameron Clyne said as long as market conditions were supportive, future debt issues by the bank were likely to be made without the government guarantee.

However, he believes it is still too early to remove the guarantee. "If things suddenly turn negative again and there's a freeze in markets then you can reactivate the guarantee again quickly," he said.

Mr Clyne told analysts he would back changes that would make the scheme more accessible to smaller lenders.

Regional banks have so far shunned the program as they face paying twice the amount to secure government backing as the big four banks, which pay 70 basis points because of their lower-risk balance sheet. "We are open to the debate as to whether it's appropriate to bring it down to a similar fee for the regional banks that's a debate that we would be open to having," Mr Clyne said.

Meanwhile, it is believed that the banking regulator, the Australian Prudential Regulation Authority, has been pressuring banks to extend the term of their funding by issuing more five-year and 10-year bonds.

Commonwealth Bank recently tested the market by raising $US1.5 billion ($A1.7 billion) through the sale of 10-year bonds. ANZ revealed last week it had extended the average maturity of its wholesale term debt to 3.9 years.