Australia banks turning to sovereign fund for cash

SYDNEY, June 12 (Reuters) - Cash-strapped Australian banks are tapping the country's sovereign wealth fund to raise new finance as traditional sources of funding dry up in the ongoing global credit crisis.

Australia and New Zealand Banking Group Ltd (ANZ) (ANZ.AX), Australia's third-biggest lender by assets, has raised about A$500 million ($472 million) in term funding from the Future Fund, an industry source said on Thursday.

The Future Fund, Australia's largest single investment fund with A$60 billion in assets, was set up by the government to cover public service pension liabilities. Its assets are set to grow to about A$148 billion by 2020.

"My understanding is that all Australian banks have done transactions with (the Future Fund). If you want debt in your portfolio, having some bank term debt is not a bad option, particularly given that you are getting more attractive spreads," said one industry source, who declined to be identified.

The fund was not available for comment.

Australia's top four banks -- National Australia Bank Ltd (NAB.AX), Commonwealth Bank of Australia Ltd (CBA.AX), ANZ and Westpac Banking Corp (WBC.AX) -- rely on wholesale credit markets to meet more than half their funding needs.

The rising cost of such funding, sparked by the U.S. subprime crisis, has forced them to look for alternative sources, such as tapping Japan's Samurai bond market.

"Whenever you get additional sources of funding, it necessarily relieves some of the upward pressure on your funding cost. So you have to think it's beneficial for banks," said Brett Le Mesurier, a banking analyst with Wilson HTM.

"In the current market, where liquidity is not like it used to be, banks are likely to explore all options available to them."

ANZ and Westpac spokesmen declined to comment, while NAB was not immediately available for comment. A Commonwealth Bank spokesman said it looked at all funding options and "the Future Fund is clearly emerging as a future source of funding."

"It's smart move for the Future Fund and it's a smart move for the banks," said Martin North, Managing Consulting Director of Fujitsu Australia and New Zealand. "With certain channels like securitisation closed or extremely expensive, the banks have to be creative about what other options they can explore."

He said the risks attached to putting investment capital into a mortgage business are relatively low, as such businesses are backed by secured assets.

Most Australian banks have raised equity capital by underwriting their dividends to tide over capital constraints.

But unlike rivals overseas, Australian lenders have refrained from rights issues, though analysts don't rule out the possibility of share sales once the capital markets stabilise. ($1=A$1.06) (Reporting by Denny Thomas; editing by Jonathan Standing)