Aussie banks' liquid assets can now cover 60% of their wholesale funding liabilities

They're now more resilient to liquidity shocks.

Moody's Investors Service says that Australian banks continue to rely on wholesale markets and confidence-sensitive funding, a factor that weighs negatively on their credit profiles.

Here's more from Moody's:

"Nonetheless, the banks' funding and liquidity metrics have improved significantly, and they are much more resilient to liquidity shocks than they were before the 2008-09 global financial crisis," says Patrick Winsbury, a Moody's Senior Vice President.

Moody' conclusions are part of a just-released report, titled Australian Bank Funding and Liquidity: Trends Remain Favorable.

The report, which will be updated semiannually, tracks the key trends in the funding and liquidity metrics of Australian banks. "Our debut edition concludes that the banks' reduced wholesale funding requirements are a credit positive, and notes that customer deposit growth is outpacing loan growth," says Winsbury.

"However, the differential between deposit growth and loan growth may narrow because, as wholesale funding market conditions improve, banks may compete less hard for deposits," adds Winsbury.

"Nevertheless, the banks will make ongoing efforts to attract stable deposits to meet future regulatory requirements, including the liquidity coverage ratio and net stable funding ratio under the Basel III regime. "

As indicated, Australian banks have reduced their vulnerability to wholesale funding market shocks. The report notes that they have lengthened their average funding tenors and increased their issuance in AUD, suggesting that they are better equipped to withstand future shocks to international financial markets.

Unsecured debt issuance by the four major Australian banks has also rebounded, as improved debt market conditions have seen the spreads on banks' new debt issuance decline.

The report says that covered bonds have also helped diversify funding options for the major banks, although their issuance has slowed to a steady pace, after an initial flurry following their introduction.

The growth in customer deposits is seen as positive overall, although the report notes evidence that high deposit spreads over the cash rate have also attracted wholesale and confidence-sensitive funding into deposits, with negative implications for their stability.

Positively, the report notes that the banks' liquid asset coverage of short-term wholesale liabilities has improved, as they have increased their holdings of cash, government bonds and self-securitized assets, whilst lengthening their average wholesale funding tenors.

Australian banks now have enough liquid assets (excluding self-securitized RMBS) to cover, on average, 60% of their wholesale funding liabilities maturing in the coming 12 months. This coverage ratio is a record high.

And they have the potential to further improve their coverage ratios, because they have self-securitized less than 15% of their mortgage assets. Their ability to enter into repurchase arrangements with the Reserve Bank of Australia (RBA), the country's central bank, using self-securitized RMBS as collateral, provides them with the means to monetize their large portfolios of prime residential mortgages.