Off the back of making an emergency cash rate cut to a record low of 0.25 of a percentage point, the Reserve Bank has announced it will set up a $90 billion term funding facility for banks to specifically support its small-business clients.
The scheme will allow Australian banks to borrow an equivalent of 3 per cent of their existing outstanding credit to Australian businesses and households, with access to additional funds if they provide more support to small and medium-sized businesses.
“The [objective] is to provide an incentive for lenders to support credit to businesses, especially small and medium-sized businesses. This is a priority area for us,” said RBA governor Philip Lowe.
“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.”
Treasurer Josh Frydenberg has also pledged $15 billion to support smaller lenders to continue their support to small-business clients.
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 banks and non-bank lenders.
“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 the coronavirus,” Mr Frydenberg said.
“Small lenders are critical to Australia’s lending markets, often driving innovation and providing competition for larger lenders.”
The Commonwealth Bank of Australia (CBA) immediately moved to lower all existing cash-linked small-business loans by a full percentage point.
“We are strongly supportive of the RBA’s new term funding facility. We intend to participate in this scheme to the fullest extent possible to access long-term funding at highly attractive rates to help support Australian households and businesses at this time,” said CBA chief executive Matt Comyn.
“Small businesses will benefit from an interest rate reduction of 100 bps on all business loans linked to the cash rate. This is in addition to a range of measures announced last week which are available for businesses facing difficulty, including waiving merchant fees, waiving redraw fees, waiving early redraw fees on business term deposit accounts, and deferring repayments on vehicle and equipment finance loans.”
Jotham Lian is the editor of Accountants Daily, the leading source of breaking news, analysis and insight for Australian accounting professionals.
Before joining the team in 2017, Jotham wrote for a range of national mastheads including the Sydney Morning Herald, and Channel NewsAsia.