LAST week's decision by the federal government to put a deadline on the removal of the wholesale funding guarantee as expected sparked a rush of issues by smaller lenders.
Arab Bank Australia Limited raised $150 million selling three-year bonds, backed by the government guarantee. ME Bank also tapped investors for $500 million in a four-year bond, government-backed issue.
ADCM Services principal Philip Bayley said the regional banks and other small non-bank lenders would make the most use of the government guarantee before it expired at the end of next month.
Both the Reserve Bank and the Australian Prudential Regulation Authority have advised Treasurer Wayne Swan that bank funding conditions have improved such that the guarantee is no longer needed.
None of the small banks have issued in the domestic market without a guarantee. Only Suncorp-Metway has issued offshore without a guarantee, selling five-year bonds to European investors in October.
ANZ last week became the first of the big four to issue in the local market this year when it sold about $1.8 billion of bonds to investors.
The guarantee helped Australia's big banks raise more than $123 billion last year using the federal government's AAA credit rating.
