Banks Keep Lending to Pump Economy

Banks Keep Lending to Pump Economy

Australia’s banks look set to keep rates at record lows and to be flexible with borrowers impacted by COVID 19.

Reserve Bank Governor, Dr Philip Lowe, recently spoke to the CEO of our major banks where he expressed the need to be flexible with $226 billion in loan deferrals that are also scheduled to end on September 30.

Dr Lowe, while expressing no concerns about a credit squeeze, encouraged the banks to keep lending and reminded them of the $90 billion special funding facility the central bank set up at the start of the crisis.

The facility, which offered banks funding at a concessional rate of 0.25 per cent to assist small businesses and help with their own margin pressures, has hardly been accessed.

As of a week ago, the banks had deferred loan repayments on 779,458 individual loans worth $236 billion. This includes 216,000 business loans.

The banks have already indicated they are willing to extend loan deferrals beyond the original six-month period offered to customers in need of ongoing support, but only on a case-by-case basis after a detailed analysis of particular customers’ circumstances.

APRA is considering whether to extend leniency to banks on loans deferred beyond September, which would provide comfort that repayment holidays can be extended without triggering capital penalties.

With residential rates as low as 2.19 per cent, the banks seem committed to pumping money into the economy.

However, there is little indication of any across-the-board rate cuts.

Recently top market economists told The Australian Financial Review’s survey for the June quarter that negative rates are unlikely in Australia.

Independent economist Saul Eslake told The Australian Financial Review that “There’s no evidence from the places where negative rates have been tried – Japan, the eurozone, Sweden, Switzerland – that it does any good; there’s some evidence from those places that it may do some harm.