Lifeline for pandemic-hit small businesses with banks pausing loan repayments

20 March 2020, Written by David Simmons & Matt Ogg

Lifeline for pandemic-hit small businesses with banks pausing loan repayments

Australia's banks will defer loan repayments for all small businesses affected by Covid-19 for six months.

According to Australian Banking Association (ABA) CEO Anna Bligh the measures to be taken by all Australian banks will deliver $8 billion back into the pockets of small businesses.

The deferment option is available to any small business regardless of industry.

"We won't be looking to draw arbitrary lines in the sand to lock businesses out," says Bligh.

"This is about getting this relief as quickly as possible into the hands of small businesses."

Speaking at a press conference this morning, Bligh did not rule out the possibility of further measures to help the broader Australian community, like freezing mortgage repayments.

"If we start to see critical need in other parts of the community including mortgages that is something that [the banks] know they will have to look at," says Bligh.

"But at this stage the most urgent and pressing need is for small businesses and this package delivers across $100 billion worth of small business loans."

The announcement follows yesterday's decision by the RBA to slash the cash rate to a historical low in order to encourage banks to lend to SMEs.

Bligh says the ABA announcement is not incongruent with the RBA's decision, and that a number of measures need to be taken in this time of crisis.

"Getting through this will require a great deal of cooperation between banks, government and regulators and I know that the decision yesterday by the reserve bank to inject low interest loans into those banks that may be able to lend out into the sector was very welcomed by banks," says Bligh.

"There are many small businesses that are struggling with loan repayments and this deferral will help them. There are other small businesses that may need access to more working capital, may be able to take on more borrowings to help them and their employees get through it."

"There is money there to lend to those that can take on more debt."

With the threat of a major recession looming, Bligh says Australia's banks - large and small - are prepared for the worst.

"Australia's banks are better capitalised than they have ever been; they are ready to lend to businesses that might need that," says Bligh.

"Banks are reaping the benefits of ten years of work to increase capital buffers so that when the rainy day comes they have what it takes to do what's needed."

CBA puts up $10 billion for households and small business

This afternoon the Commonwealth Bank of Australia (ASX: CBA) announced it would auto-enroll businesses into loan deferral arrangements for up to six months, ensuring immediate support for small businesses likely to be most impacted by the coronavirus.

"These are unprecedented times, and we will continue to take decisive actions to support households and the small business community," says chief executive officer Matt Comyn.

"We stand shoulder to shoulder with the Government, the Reserve Bank, our regulators and the banking industry to support the economy at this time.

"We welcome today's announcement by the Australian Banking Association (ABA), which benefits 200,000 of the bank's small business customers."

Comyn says the ABA's loan deferral scheme will include all customers with a home loan, therefore providing $10 billion in support to households and small businesses.

"To ensure immediate support, CBA will also auto-enrol 76,000 of its small business customers into loan deferral arrangements for up to six months from 1 April. This will ensure that $240 million of support immediately reaches small businesses who are most vulnerable in the current environment" he says.,

"A digital registration process will be available from Saturday for any home loan customer wishing to defer their repayments. Unless the request for support is urgent, there is no need for customers to contact us before this time. We will also be communicating with our small business customers from next week and giving them the choice to opt out of the auto enrolment process."

Yesterday afternoon the bank had already announced a raft of measures to help customers, including a 100bps interest rate reduction for all existing cash-linked small business loans.

CBA has also made a 70bps interest rate reduction in one, two and three year fixed home loan rates for owner occupiers paying principal and interest to 2.29 per cent.

The bank is increasing 12-month term deposit rates by 60bps to 1.7 per cent, and it will change home loan repayments in order to release up to $3.6 billion in cash for Australian households.

This entails reducing repayments to the minimum required under the loan contracts of up to 730,000 customers, for whom around $400 per month will be released.

"Small businesses will benefit from an interest rate reduction of 100 bps on all business loans linked to the cash rate," says chief executive officer Matt Comyn.

"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.

"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."

"$380 million a week" injection possible, says NAB

National Australia Bank (ASX: NAB) reiterated the measures in an ASX release after the press conference, noting floating and variable rate business loans could be deferred for business customers facing financial difficulties.

Home loan customers experiencing financial challenges will also be able to pause their repayments for up to six months.

As Australia's largest bank for business, NAB will cut the rate on new loans by 200 basis points (bps) while variable rates on small business loans will be reduced by 100bps effective 30 March, adding to the 25bps reduction announced on 13 March.

Fixed rate home loans will be cut by 60bps, while NAB has also introduced a 10-month term deposit rate of 1.75 per cent per annum in recognition that this low interest rate environment is hurting savers.

This package could provide a potential injection of more than $10 billion into the economy over six months, or $380 million a week, depending on customer needs and take-up.

"Our focus is clear to support our business and personal customers with their financial needs when they need it most," says NAB CEO Ross McEwan.

"These measures will provide significant relief to businesses and homebuyers over the next six months as we all deal with this unprecedented situation.

"Businesses in particular need help and they need it now, so we have come through with a range of measures. This support will provide cash flow relief so they can stay open, and keep people in jobs."

McEwan highlights one third of the country's SMEs bank with NAB, so "we are going to be there for them".

"The changes also offer our home loan customers the option to fix their rate at our lowest rate ever, or pause payments to help ease financial pressures," he says.

"We support the measures announced by the ABA today and welcome recent actions taken by the Federal Government, Reserve Bank of Australia and APRA. We will continue to work with the Government and regulators on further initiatives."

Westpac launches $10 billion home lending fund

Westpac Banking Corporation (ASX: WBC) has followed suit with a series of cuts including a 200bps reduction in overdrafts for new and existing customers as of 6 April. 

Variable interest rates on small business loans will be slashed by 100bps, but the most significant announcement from Westpac is a $10 billion n home lending fund to support the economy by assisting more Australians into home ownership.

"The comprehensive measures announced by the RBA and APRA yesterday provide a genuine economic stimulus by reducing uncertainty and allowing us to continue to support customers with confidence," says acting CEO Peter King.

King says the bank is also strengthening its support measures for small business and personal customers.

"We recognise it is an unsettling time for many Australians and we want our customers to know we're here to support them," he says.

The bank is also offering a 2.29 per cent fixed rate home loan for one, two and three years for owner occupied customers on principal and interest repayments, and similarly to NAB and CBA it is offering a 1.7 per cent rate on 12-month term deposits.

"This is a once in a lifetime event and a united response by government, regulators and corporate Australia is exactly what we need," says King.

"As Australia's oldest bank, we have a long history of helping customers and communities through times of uncertainty and we are using this experience to put the plans and processes in place to support our business and retail customers through the challenges ahead."

ANZ slates $6 billion injection

Australia and New Zealand Banking Group (ASX: ANZ) has also announced a wide-reaching package for small businesses and home loans which could end up being worth $6 billion.

The package includes a reduction of some fixed-rates of 0.80 per cent on new loans for small business and 0.49 per cent for home loan customers, as well as a reduction of variable small
business rates of 0.25 per cent and variable home loan rates of 0.15 per cent.

This means two- and three-year small business loans worth up to $1 million will be at a 2.59 per cent fixed rate.

"Our package supports Australian business and the people who work for them. We understand the impact this crisis is having and ANZ will play a major role in backing Australia's economy and our customers through these challenging times," says ANZ chief executive officer Shayne Elliott.

"We have been working with both the Federal Government and our regulators to keep money flowing through the economy and we'll do all we can to keep businesses afloat and Australians employed, as well as reducing the financial pressure on households.

"Our decision to reduce variable home loan and small business rates is the right thing to do for our existing customers, particularly the significant number of our home loan customers who are self-employed and managing the effects of the COVID-19 crisis on their own businesses."

ANZ also acknowledges there are severely impacted small and medium business customers who will need specialist support, and it says these customers will have access to relief measures that specifically respond to their circumstances. 

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Author: David Simmons & Matt Ogg

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