Hours after the emergency rate cut by the Reserve Bank, the Prime Minister and Treasurer addressed Australia announcing a further $15 billion investment to enable smaller lenders to continue supporting Australian consumers and small businesses.
This funding will complement the Reserve Bank of Australia’s announcement of a $90 billion term funding facility for authorised deposit-taking institutions (ADIs) that is also expected to support lending to small and medium enterprises. Lenders have been told they will be able to borrow additional funds from the Reserve Bank at 0.25 of a percentage point over three years if they increase credit to business this year.
In a separate media address, Governor Philip Lowe explained that the RBA’s objective is to provide an incentive for lenders to support credit to businesses. He told banks that for every extra dollar lent to large business, they will have access to an additional dollar of funding from the Reserve Bank; while for every extra dollar of loans to SMEs, they will have access to an additional five dollars.
“This is a priority area for us. Many small businesses are going to find the coming months very difficult as their sales dry up and they support their staff. Assisting small businesses through this period will help us make that bridge to the other side when the recovery takes place,” Mr Lowe said.
“These funds can be drawn upon up until the end of March next year. There is no extra borrowing allowance for additional housing loans.”
Affordable lending a priority
Similarly, Treasurer Josh Frydenberg explained that the government wants to enable customers of smaller lenders to continue to access affordable credit as the world deals with the significant challenges presented by the spread of the coronavirus.
“Small lenders are critical to Australia’s lending markets, often driving innovation and providing competition for larger lenders,” said Treasurer Josh Frydenberg.
“Combined, these measures will support the continued ability of lenders to support their customers and in doing so the Australian economy.”
The Treasurer confirmed that the government’s debt agency, the Australian Office of Financial Management (AOFM), will be provided with an investment capacity of $15 billion to invest in wholesale funding markets used by small ADIs and non-ADI lenders.
The $15 billion capacity would allow the AOFM to support a substantial volume of expected issuance by these lenders over a 12-month period.
“Importantly, the assets being purchased by the AOFM will not be limited to residential mortgage-backed securities,” the Treasurer added.
“The AOFM will also be able to invest in a range of other asset-backed securities and warehouse facilities. The government will provide the AOFM with investment guidelines that will outline the basis on which the AOFM is to undertake these investments.”
Enabling legislation will be introduced in the week commencing Monday, 23 March 2020. The AOFM is expected to be able to begin investing by April.