Bank of New Zealand, a unit of National Australia Bank Ltd., may seek to raise as much as NZ$400 million ($274 million) from the nation’s first sale of covered bonds, according to a person familiar with the plan.
The lender may start marketing the notes in the week beginning June 14, the person said, asking not to be named as the plans are private. A final decision on whether to proceed with the sale hasn’t yet been made, according to the person.
“BNZ’s program will be the first covered bond program to be launched in this region and opens another potential source of funding for issuers,” David Carroll, director in Fitch Ratings’ structured finance team, said in an e-mailed statement today.
The $2.9 trillion covered bond market may offer “the way forward” as lenders seek to increase their financial strength after the global credit crisis, Mahes Hettige, BNZ’s head of balance sheet management - treasury, said at a conference last week. Covered bonds, which are mostly sold by European banks, attract higher credit ratings than regular notes and typically pay less interest because they’re backed by a pool of assets such as mortgages that can be sold in a default.
Australian banks, which own the four largest lenders in New Zealand, are barred from selling covered bonds in their home market. Australia’s financial regulator forbids the notes because it says the home loans used as security wouldn’t be available to repay depositors if a bank defaulted.
Fitch gave BNZ’s covered notes an expected rating of AAA, the top investment grade, it said today. The lender also got the highest provisional rating of Aaa from Moody’s Investors Service, according to an e-mailed statement from the risk assessor.
BNZ can sell as much as NZ$3 billion of notes under its program, and its first sale will be secured by loans worth NZ$521.8 million, according to the statement.