TAXPAYERS and investors in the four main lending banks should be concerned if the Australian Business Investment Partnership, the so-called Rudd Bank, writes any cheques to bail out a commercial property project, its interim chief executive, Ahmed Fahour, said yesterday.
Speaking before the Senate Economics Committee in Sydney yesterday, Mr Fahour said the partnership was intended as a contingency plan to support viable projects, not as an easy exit from bad debts for foreign banks.
"We are the lender of last resort, where we hope for the best and plan for the [worst]," he said. "I see the measure of success of ABIP is to not do a single loan, as the only reason it is being established is if there is a market failure and a credit catastrophe."
Mr Fahour said the partnership had a two-year shelf life in which it could assess and fund projects. After that projects would have up to three years to sell or "run off" the loan.
The Rudd Bank was set up as a temporary line of liquidity for viable, national commercial property projects as commercial lenders put the brakes on corporate real estate lending.
It will be expensive - interest will be as much as 300 basis points above the market rate - and all debt must be secured by completed or partly completed projects with pre-committed tenants.
The partnership will manage $4 billion: $2 billion from the Federal Government and $500 million from each of the four lending banks. It would have a director from each of the banks, as well as Mr Fahour, if he accepts the job, and an independent public servant as chairman.
At present about $170 billion of debt is outstanding in the sector, of which about $40 billion is from foreign banks.
Mr Fahour said he did not leave the National Australia Bank, where he managed operations in Australia and Asia, to put his name on "dud" loans. A foreign bank would not leave a country just because of a bad loan, he added.
But not all players are happy with the partnership's plans.
The US financing giant General Electric, which has detailed plans to scale back consumer lending in Australia, has urged the Federal Government to restrict the operations of the Rudd Bank to commercial property.
It argued that a wider mandate would be detrimental to the economy if it actively discouraged regional banks, foreign lenders and new entrants.
In a submission to the Senate review of the partnership, GE also questioned the need to establish a lender of last resort for commercial property: "Which, if any, foreign banks that have a commercial property division are likely to pull out of Australia?"
GE is paring back its finance units around the world, but most of all in consumer lending in the US and mortgages in Britain.
It recently sold its Wizard mortgage business and is reportedly planning to cut more than 700 jobs.
