BFF5926 Australian Capital Markets MRCB 代写

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BFF5926 Australian Capital Markets MRCB 代写

CASE STUDY ASSIGNMENT

BFF5926 Australian Capital Markets – 2nd Semester, 2017

The monthly board meeting of the Monash Retail Commercial Bank was a happier one than

normal. For once regulation seemed to be in its favour. A credit risk weighting floor, removal of

advanced operational risk weightings and a bank levy all applied to their big four competitors

should make loan competition a bit less severe. APRA's recent CET1 announcement also made

the MRCB's capital position more clear: It would not have problems in meeting the 2.5 year

deadline.

BFF5926 Australian Capital Markets MRCB 代写

One area that MRCB still needed to improve was its net stable funding ratio. The CFO had

worked to minimise any immediate problems but the maturity of its liabilities should still be

lengthened. The problem was that market was not keen on providing longer term funding.

More recently some fund managers and superfunds with a "green" mandate had raised the idea of

ADI green issues. NAB had done so. These investors took a longer term view and the CFO felt

that a 10 year issue would be possible. The question was how the best could be accomplished.

MRCB had long offered green home finance. It required the house to have Victoria's 5 star

environmental rating, have either solar power, wind power or hydro or at least two of the

following: double glazing, solar hot water, water storage tanks, and roof and wall insulation. In

return, MRCB offered its normal loan package (including an offset facility and no fee transaction

account) with 5 basis point discount on its variable interest rate. While quite a small part of

MRCB's operations, the green loans had been surprisingly successful given that other players,

like Regional Australia Bank, charged 1.5% less its normal variable rate or about 61 basis points

lower than MRCB.

The CFO thought these loans should be kept on the bank balance sheet in a separate accounting

unit and offered as specialised type of covered bond or packaged together and securitised into a

green RMBS issue. Both methods had their own advantages and disadvantages. The potential

issue size was also a concern as neither would result in particularly liquid security. It was

definitely a private placement, hold to maturity issue. Exactly what these investors consider to be

green remained another question.

The directors were undecided. Several could see potential for more green loans. As one director

commented, “higher power prices meant some customers would seek solar power funding."

While mainly for $10,000 to $20,000, they would help reinforce MRCB reputation as an

environmental and sustainability concerned business. Another director asked, "What about the

competition?" It was well known that other ADIs were heavily discounting such green advances.

Would the longer term funding and rates justify MRCB offering to a more competitive loan rate?

The chair could see that this two part lending and funding questions would not be resolved on the

day and directed that a report be prepared for the next meeting. As the MRCB strategy team, you

group has been tasked to answer the following five questions:

BFF5926 Australian Capital Markets MRCB 代写