The Government today announced $15 billion in stimulus investment to enable small banks and non-banks to supply low-cost loans to customers and small business.
This coincides with the Reserve Bank of Australia (RBA) making an unprecedented emergency cash rate cut to 0.25%, as well as a $90 billion Term Funding Facility (TFF) for authorised deposit-taking institutions (ADIs), taking place no later than 16 April.
In a joint statement on the $15 billion investment, Prime Minister Scott Morrison and Treasurer Josh Frydenberg said smaller lenders are critical to Australia's lending markets, providing competition and driving innovation.
"The government’s actions will enable customers of smaller lenders to continue to access affordable credit as the world deals with the significant challenges presented by the spread of coronavirus,'' they said.
Facilitated by the Australian Office of Financial Management (AOFM), the $15 billion will go into wholesale funding markets used by small banks and non-banks, buying assets such as residential mortgage backed securities (RMBS).
The Treasurer said the AOFM will also be able to invest in a range of other asset backed securities and warehouse facilities.
The $15 billion investment, which is expected to begin by April, nearly matches the $17.6 billion in stimulus measures announced for consumers last week.
Reserve Bank Governor Philip Lowe today welcomed the government's support for asset-backed securities via the AOFM.
"This support is important as it will help non-bank financial institutions and small lenders to continue to provide credit to Australian households and businesses."
Westpac chief economist Bill Evans said the $15 billion initiative parallels similar moves from the AOFM during the Global Financial Crisis.
"It will be of particular support to issuers of Mortgage Backed Securities," Mr Evans said.
On the $90 billion funding facility announced by the RBA, Mr Evans said it was 'pleasing' to see.
"ADIs will be able to obtain funding for up to 3% of existing outstanding credit," he said.
"The objective is to support small and medium sized business.
"ADIs will still be required to take on the credit risk associated with these facilities, but may consider switching more expensive facilities for existing borrowers into these facilities, providing a cash flow boost to small and medium sized businesses."
Looking for an owner-occupier home loan? Below are some variable home loans with the lowest interest rates in the market.
Smart Booster Home Loan
- Discount variable for 1 year <=80% LVR
- No ongoing fees
- Unlimited redraw facility
Monthly repayments: $1,476
- Discount variable for 1 year
- No ongoing fees
- Unlimited redraw facility
Base criteria of: a $400,000 loan amount, variable, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. If products listed have an LVR <80%, they will be clearly identified in the product name along with the specific LVR. The product and rate must be clearly published on the Product Provider’s web site. Monthly repayments were calculated based on the selected products’ advertised rates, applied to a $400,000 loan with a 30-year loan term.
Australian banks punching above their weight
Today, the Australian Prudential Regulation Authority (APRA) also temporarily adjusted bank capital expectations.
'Common Equity Tier 1' capital reached $235 billion at the end of 2019, and many banks are maintaining capital levels above minimum requirements.
For smaller banks, a lower ratio applies, but for the big four, their ratio has been 11.3% at the end of 2019.
APRA Chair Wayne Byres said the authority envisages banks may need to tap into their large buffers to facilitate ongoing lending.
“APRA has been pursuing a program to build up the financial strength of the system for many years, when banks had the capacity to do so," he said.
"As a result, the Australian banking system is well-capitalised by both historical and international standards.
“APRA’s objective in building up this capital strength has been to ensure it is available to be drawn upon if needed in times such as this.
"Today’s announcement reflects the underlying strength of the system: even if the banking system utilises some of its current large buffers, it will still be operating comfortably above minimum regulatory requirements."
The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered which includes retail products from at least the big four banks, the top 10 customer-owned institutions and Australia’s larger non-banks:
- The big four banks are: ANZ, CBA, NAB and Westpac
- The top 10 customer-owned Institutions are the ten largest mutual banks, credit unions and building societies in Australia, ranked by assets under management in November 2020. They are (in descending order): Credit Union Australia, Newcastle Permanent, Heritage Bank, Peoples’ Choice Credit Union, Teachers Mutual Bank, Greater Bank, IMB Bank, Beyond Bank, Bank Australia and P&N Bank.
- The larger non-bank lenders are those who (in 2020) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.
Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site.
In the interests of full disclosure, Savings.com.au, Performance Drive and Loans.com.au are part of the Firstmac Group. To read about how Savings.com.au manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.
*Comparison rate is based on a loan of $150,000 over a term of 25 years. Please note the comparison rate only applies to the examples given. Different loan amounts and terms will result in different comparison rates. Costs such as redraw fees and costs savings, such as fee waivers, are not included in the comparison rate but may inﬂuence the cost of the loan.
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