Banks around the world face increases in funding costs that could cut profits and hit their customers as they look to refinance $7,000bn-plus in short-term debt expiring in the next three years with longer-dated bonds, according to research released today.
Institutions seeking to reduce their reliance on short-term paper will have to pay up because interest rates are likely to rise and governments will stop supporting the financial system, the study by the credit rating agency Moody's concludes.
The flood of expiring debt will hit the US and the UK hard – with $2,000bn of debt coming due by 2012 – and could curb banks' profits or force them to charge individuals and companies more for their services.
The rush to refinance more than $7,000bn of debt by 2012 and a further $3,000bn by 2015 will exacerbate the divide between winners and losers from the crisis, with healthier banks able to fund themselves at cheaper rates than troubled rivals.
Investors said the mountain of maturing debt would increasingly weigh on the cost of bank bonds.
Moody's estimates that a lender wanting to refinance a short-term government-guaranteed bond with 10-year paper could see costs rise nearly 7 percentage points.
The average maturity of new debt issued by banks has fallen from 7.2 to 4.2 years in the past five years – the shortest average maturity for new debt in 30 years, according to the rating agency.
Average debt maturity in the US sank to 3.2 years in 2009, less than half the long-term average.
