May 18, 2012 / 7:01 AM / 8 years ago

UPDATE 2-ANZ chief says Europe credit markets frozen

* Freeze in funding markets caused by European turmoil-CEO

* Major Australian banks have completed most of fund-raising

* Australian bank stocks, Aussie dlr extend losses (Adds clarifying comments, details, market reaction)

By Amy Pyett and Victoria Thieberger

SYDNEY/MELBOURNE, May 18 (Reuters) - European lending markets have frozen due to heightened risk aversion, Australia and New Zealand Banking Group’s chief executive said, potentially further increasing the cost of funds for banks.

Lenders in Europe are seeking to preserve capital as turmoil from Greece’s debt woes hammers financial markets, with world stocks down for a fifth day and bond yields sinking to multi-month lows.

“European funding markets are essentially closed at the moment because of the uncertainty in Europe. However, Asian and U.S. markets remain open,” ANZ Chief Executive Mike Smith said, clarifying earlier comments at a business lunch that did not mention the regions.

The Australian wholesale market, which typically contributes a third of the wholesale funding needs of banks in the country, is still open though, with over $2 billion in deals in the market this week.

A prolonged freeze in funding markets following the collapse of Lehman Brothers in 2008 left many banks unwilling or unable to lend, crippling the global economy and forcing governments to bail out lenders or guarantee their debts.

However, Smith, who leads Australia’s fourth-largest lender, said he did not expect another Lehman-type shock resulting from the problems in Greece.

“While we will see volatility as the European crisis unfolds, the situation is more manageable than 2008 when we had the shock collapse of Lehman’s,” he said.

The comments pushed Australian bank shares lower and helped weigh on an already under pressure Australian dollar, which plumbed fresh 2012 lows below $0.98.

Shares in ANZ and rivals Westpac Banking Corp, Commonwealth Bank of Australia and National Bank of Australia all declined by around 4 percent.

“If wholesale funding has dried up, then it potentially takes us back to the sort of the credit crunch conditions we had back in 2008, where global financing dried up,” said Shane Oliver, head of investment strategy AMP Capital Investors.

AMP Capital manages A$124 billion in assets and owns shares in the top Australian banks.

Australia’s top four banks together raise almost $100 billion annually from wholesale funding markets to bridge a gap between total loans and deposits.

They have raised over 80 percent of wholesale funding needs for 2011/2012.

The banks are among the few AA rated lenders in the world having come out of 2008 crisis stronger.

Since the global financial crisis, Australian banks have raised more deposits, extended the tenure of funds and scaled up liquid assets to record levels. ($1 = 1.0065 Australian dollars) (Additional reporting by John Waever at IFR; Writing by Narayanan Somasundaram; Editing by Lincoln Feast and Ryan Woo)

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