Liquidity slip traps Rabo, HSBC and Macquarie

John Kavanagh Finance regulation

APRA has told Macquarie Bank, Rabobank Australia and HSBC Bank Australia to tighten their intra-group funding arrangements, after finding their reporting in this area has been in breach of the prudential liquidity standard.

APRA reviewed ADI funding arrangements and found the three banks were “improperly reporting the stability of the funding they received from other entities within the group”.

It said the banks had provisions in their funding agreements that would potentially allow group funding to be withdrawn in a stress scenario, undermining the stability of the banks.

In a statement to the Australian Securities Exchange, Macquarie Group said it raises long-term funding and places surplus funds with Macquarie Bank in the form of intra-group loans.

Over the past year, these loans have represented around 10 to 15 per cent of the bank’s total funding and have been included in the calculation of the bank’s liquidity coverage ratio.

Macquarie said that what concerned APRA was the existence of a “material adverse change clause” in the master loan agreement, which could have the effect that repayment of the intra-group funding could be accelerated and thereby fall short of the LCR horizon of 30 days.

Macquarie said it had removed the clause to restore the contractual tenor of the loans and to ensure there is no impact on Macquarie Bank’s LCR calculation going forward.

Rabobank Australia issued a media release saying “this matter relates to a type of clause contained within the funding agreement with our parent, which APRA has recently clarified has implications on the way liquidity coverage ratios are calculated and reported. We are working with APRA to ensure this agreement is amended appropriately”.

The bank said its Netherlands parent “stood fully behind its ongoing funding commitment to its Australian subsidiary”.

APRA said the banks would have to restate their past funding and liquidity ratios where they had been reported incorrectly.

Macquarie said it was likely that its recalculated LCRs would show historical non-compliance with LCR requirements.

APRA deputy chair John Lonsdale said in a statement: “Macquarie Bank, Rabobank Australia and HSBC Australia are financially sound, with strong liquidity and funding positions in the current stable environment.

“However, to ensure they would be able to withstand a scenario of financial stress, group funding arrangements for Australian banks must be watertight, so they can be relied on when they would be most needed.”