RBA Governor calls on banks to help post-COVID-19 recovery

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on May 21, 2020
RBA Governor calls on banks to help post-COVID-19 recovery

Image source: Newtown grafitti, Flickr

Reserve Bank Governor Philip Lowe has called on Australia's banks to not be afraid to lend, as Australians begin to move out of COVID-19 restrictions.

Speaking via Webinar in a special session of Australia's financial regulators, Dr Lowe reiterated the importance of banks and lenders using their existing capital and liquidity buffers to help the Australian economy. 

These buffers, strictly compulsory under Australian banking laws, essentially act as rainy day funds for the banks to keep topped up for use in case of an emergency.    

"If there was ever a time to allow these buffers to be used, now is that time," Dr Lowe said. 

"We should not expect to see capital buffers be maintained during a once-in-a-century shock.

"These buffers have been built up to be utilised in events such as this, and some reduction in capital ratios is entirely appropriate as lenders support their customers through this difficult period."

Buying a home or looking to refinance? The table below features home loans with some of the lowest variable interest rates on the market for owner occupiers.

Lender

Variable
More details
UNLIMITED REDRAWSSPECIAL OFFER
  • Fast turnaround times, can meet 30-day settlement
  • For purchase and refinance, min 20% deposit
  • No ongoing or monthly fees, add offset for 0.10%
UNLIMITED REDRAWSSPECIAL OFFER

Smart Booster Home Loan Discounted Variable - 2yr (LVR < 80%)

  • Fast turnaround times, can meet 30-day settlement
  • For purchase and refinance, min 20% deposit
  • No ongoing or monthly fees, add offset for 0.10%
Variable
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100% FULL OFFSET ACCOUNTNO APPLICATION FEE OR ONGOING FEES
  • No upfront or ongoing fees
  • 100% full offset account
  • Extra repayments + redraw services
100% FULL OFFSET ACCOUNTNO APPLICATION FEE OR ONGOING FEES

Low Rate Home Loan - Prime (Principal and Interest) (Owner Occupied) (LVR < 60%)

  • No upfront or ongoing fees
  • 100% full offset account
  • Extra repayments + redraw services
Variable
More details
NSW/VIC/SA METRO & INNER REGIONAL AREAS
NSW/VIC/SA METRO & INNER REGIONAL AREAS

Variable Home Loan (Principal and Interest)

  • $5000 Cashback. T&Cs Apply.
Variable
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REFINANCE ONLY
  • A low-rate variable home loan from a 100% online lender. Backed by the Commonwealth Bank.
REFINANCE ONLY

Variable Rate Home Loan – Refinance Only

  • A low-rate variable home loan from a 100% online lender. Backed by the Commonwealth Bank.
Variable
More details
NO ONGOING FEESFREE REDRAW FACILITY
  • Rate Match Guarantee. Tic:Toc will match the rate on identical variable P&I home loans. T&C's Apply.
NO ONGOING FEESFREE REDRAW FACILITY

Live-in Variable Loan (Principal and Interest) (LVR < 90%)

  • Rate Match Guarantee. Tic:Toc will match the rate on identical variable P&I home loans. T&C's Apply.

Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. However, the ‘Compare Home Loans’ table allows for calculations to be made on variables as selected and input by the user. All products will list the LVR with the product and rate which are clearly published on the Product Provider’s web site. Monthly repayments, once the base criteria are altered by the user, will be based on the selected products’ advertised rates and determined by the loan amount, repayment type, loan term and LVR as input by the user/you. *The Comparison rate is based on a $150,000 loan over 25 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. Rates correct as of June 26, 2022. View disclaimer.

Dr Lowe spoke on behalf of the Council of Financial Regulators, which includes the likes of the Australian Prudential Regulation Authority (APRA), The Australian Securities and Investments Commission (ASIC), the Australian Treasury and the RBA.

"We are living through the biggest and the most sudden economic contraction since the 1930s," he said. 

"Last week we had a stark reminder of the very human cost of these efforts, with almost 600,000 jobs lost in April and more than 750,000 Australians on zero hours. All up, total hours worked in Australia fell by an unprecedented 9 per cent in April.

"One obvious source of uncertainty is the pace at which the various restrictions are eased. The faster that the restrictions can be lifted safely, the sooner and stronger the economic bounce-back will be and the less economic scarring will take place."

He said it is important that banks continue to support the flow of credit into the economy, as consumer confidence does not appear to be high despite the economy beginning to reopen, and that people have large degrees of uncertainty about the health of their own finances. 

"It is interesting that the initial evidence is that countries that have had fewer restrictions are also experiencing very large contractions in economic activity," he said. 

"This suggests that voluntary decisions that people have made in response to the uncertainty about their health and their finances is also playing a major role.

"In the face of this uncertainty, people have been reluctant to go out and spend and businesses have been reluctant to invest."

Dr Lowe also said there's a limit to what can be achieved through monetary policy, such as cash rate cuts, highlighting the important role Australia's financial institutions have to play in helping the economy emerge from COVID-19. 

"As part of this effort, it is both understandable and desirable that lenders draw on the buffers that were built up in better times," he said. 

"It is in the banks' own interest and in the interest of the broader Australian community that banks support their customers now and also support them in the recovery phase when credit will be needed so that businesses can once again expand."


APRA Chairman Wayne Byres shared Dr Lowe's opinion, and said that the strength of Australia's financial system has been critical to its COVID-19 response. 

"That strength is the product of a concerted and persistent effort by the industry, reinforced by regulators, to build-up resilience during the good times," Mr Byres said. 

"The age-old adage of saving for a rainy day is never more apt than now. We’re glad we did it, even though it wasn’t always easy or popular at the time."

ASIC Chair James Shipton meanwhile said it expects banks and lenders to continue to treat customers fairly during and after the COVID-19 crisis. 

"There has never been a greater need for the financial services industry to live up to the professional expectations of the community," he said.

"More than ever before, we – and the community – expect financial services professionals to perform their crucial roles competently and conscientiously."

Australian banks have already done a lot to support Australians during the coronavirus crisis, with the Australian Banking Association (ABA) reporting that its 22 member banks have deferred payments of nearly half a million mortgages.

In total, ABA member banks have deferred a total of 643,000 loans worth more than $200 billion. 


Disclaimers

The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered. 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. Savings.com.au, yourmortgage.com.au, yourinvestmentpropertymag.com.au, and Performance Drive are part of the Savings Media group. In the interests of full disclosure, the Savings Media Group are associated with the Firstmac Group. To read about how Savings Media Group manages potential conflicts of interest, along with how we get paid, please visit the web site links at the bottom of this page.

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William Jolly joined Savings.com.au as a Financial Journalist in 2018, after spending two years at financial research firm Canstar. In William's articles, you're likely to find complex financial topics and products broken down into everyday language. He is deeply passionate about improving the financial literacy of Australians and providing them with resources on how to save money in their everyday lives.

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