Australian Prime Minister Kevin Rudd pledged A$4 billion ($2.6 billion) for a lending fund for commercial property companies should foreign banks fail to roll over as much as A$75 billion in business loans, Bloomberg reported.
The Australian government will provide A$2 billion and the remainder will come from equal contributions from the nation's four largest banks Commonwealth Bank of Australia, Australia & New Zealand Banking Group Ltd., Westpac Banking Corp., and National Australia Bank Ltd., according to a statement from Rudd. The fund could be accessed by March, the statement said.
A shortfall in credit could push Australia's economy into its first recession since 1991, worsening a surge in job cuts at companies including BHP Billiton Ltd. following a drop in demand from China and waning consumer spending. Governments in the U.S. and Europe are bolstering measures to underwrite bank lending after recapitalization efforts failed to restore credit flow.
"I think we will see some withdrawals," of foreign bank lending in Australia, Finance Minister Lindsay Tanner told journalists in Melbourne today. "Nobody can be certain how large that degree of withdrawal may be."
Overseas banks accounted for more than half the A$285 billion in syndicated loans issued to Australian businesses since 2006, Rudd said this week, citing Merrill Lynch & Co. figures. Some A$75 billion is due to be rolled over in the next two years.
The new fund will only offer loans to companies on commercial terms when the Australian government and the banks agree the property assets and income would be economically viable, he said. It could be used to refinance existing syndicated loans if a member of the lending group withdraws.