Suncorp-Metway, Australia's sixth-largest bank with over AUD27.3 billion (USD15.9 billion) in assets, is looking to make its credit derivatives debut in the next 6-12 months. "At the moment we'd use these from the point of view of balance sheet management," said Mark Gardener, senior manager of the interest rate management group in Brisbane. He continued, "There's newer people in the balance sheet area that are more prepared to look at credit derivatives," noting that they are more open to using newer products. The bank will look to purchase credit protection on domestic names to hedge its loan portfolio, which stood at AUD22.9 billion in June.
Suncorp-Metway is in talks with major Australian trading banks as well as larger offshore players, Gardener said, declining to name the firms. The bank will opt for firms that are prepared to play an educational role, as well as offer tight pricing, when selecting counterparties. It already uses interest rate derivatives for hedging and also offers the products to its customers.
"This is a very good market development," said one credit trader at an international house in Sydney, adding, "Aussie banks are natural buyers of protection--it's good to see more banks looking at getting things done." While the credit market in Australia contracted in size last year (DW, 10/27), players are confident that the market will grow in 2003 as a result of more banks and funds entering the market (DW, 1/6).