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Cbus to become a corporate lender

Cbus is going for a lending break.

Cbus is going for a lending break. Photo:Getty

Building industry super fund Cbus is to enter the corporate lending market in response to reduced lending capacity from the banks.

The move could presage the emergence of the industry funds sector as an alternative to the banks with umbrella group IFM Investors and sector giant Australian Super already making loans.

“There’s a lot of regulatory constraints around the banks and it is forcing them to offload some of their loans as regulations become more and more onerous,” said Rob Leck, Cbus debt manager.

Those regulations are capital adequacy rules that are being beefed up internationally as a response to the problems that hit many banks during the global financial crisis.

They force banks to put more capital aside against their loans, effectively reducing their ability to lend.

Cbus is finalising its strategy for entering the lending market and expects to be ready to move in three to six months.

Bank regulation is creating a space

Bank lending is being restricted. Photo: AAP

Bank lending is being restricted. Photo: AAP

“When you see someone vacating a space other lenders have the opportunity to come in and do what the banks do. In the medium term it’s a good opportunity for us ” Brett Chatfield, Cbus public markets manager said.

Cbus sees itself as having advantages that will help it compete with the banks. “We can use our competitive advantage to lend longer. The banks typically lend to corporates for three to five years,” Mr Leck said.

“If the banks can do three to five years we can go longer. A lot of corporates are forced to go overseas for five, seven and 10 year capital.”

Funds can lend longer

“We can develop longer relationships with corporates. We can lend longer than five and move out (the length of the loan) as the relationship develops,” Mr  Leck said.

Industry funds have advantages over the banks because of their funding model. “The banks borrow other people’s money and lend it to other people.”

“We have a lot of money coming in (through super contributions). If we can get adequate returns on the credit and liquidity risk (lending) makes a lot of sense for us,” Mr Leck told The New Daily.

The regulatory vice is tightening

The lending market will soon get more difficult for banks under the Basel international banking regulation accords. “Under the next stage of Basel banks will have to fund where they lend.”

“That means if they lend for three years they have to borrow for three years. Banks have traditionally borrowed short and lent long, so their whole business model is under pressure,” Mr Leck said.

Currently Cbus has six per cent of its $34 billion under management, or $2.04 billion, in the ‘alternative debt’ category that corporate lending would come under. That exposure is now obtained through fund managers, mainly in the European market.

The sector will be gradually brought in-house as Cbus begins to make its own corporate loans. “It could grow as a proportion of funds. But even if it stays at six per cent, the growth in our funds under management would see fairly rapid growth in the category,” Mr Chatfield said.

Cbus sees potential to lend to corporates, infrastructure groups and for affordable housing. In corporate lending it could take security over company assets or lend on cash flows, Mr Chatfield said.

A new funding sector emerges

The move is something of a harbinger for the emergence of industry funds in the lending market. “There is going to be a transition over time where industry funds become material financiers and lenders in the market,” Mr Leck said.

The industry funds would not supplant the banks, but would act as an alternative for corporate borrowers and could also work in with banks on funding deals, Mr Leck said.

Already IFM Investors, an umbrella investor for industry and other funds with $70 billion under management, has $20 billion in loans to infrastructure projects.

Australian Super, the largest of the industry funds with $100 billion under management, is making loans to property developers to fund commercial property projects.

The New Daily is owned by a group of industry super funds.

 

 

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