RETAIL BANKING | Tony Chua, Australia

Commonwealth Bank mulls offering $5.37bn covered bonds

The lender immediately wants to test the market once new laws that seeks to clear the way for Australian lenders to issue covered bonds is passed.

Commonwealth Bank of Australia (CBA.AU), the nation's biggest lender, has the capacity to issue around 5.0 billion Australian dollars ($5.37 billion) in covered bonds annually before it hits a regulatory ceiling and will look to test the market as soon as new laws are approved in Canberra, bank treasurer Lyn Cobley said Tuesday.

Lawmakers are expected in coming months to change existing legislation that currently ranks depositors above all other creditors, in effect clearing the way for Australian lenders to issue covered bonds. Once the new laws are enacted, which CBA expects to happen toward the end of 2011, the bank will be ready to test the market.

"We will look to be issuing covered bonds either by the end of 2011 or early 2012," Cobley told Dow Jones Newswires in an interview. She said the new funding instrument will allow the bank to diversify its funding sources, and both local- and foreign-currency issuance will be an option.

Draft legislation set out by the government caps covered bond issuance at 8.0% of a bank's assets, which in the case of CBA's balance sheet would equate to A$30 billion ($31.74 billion) -A$35 billion ($37.03 billion) in total funding, Cobley said.

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