Following consultation with regulators, the Australian Banking Association (ABA) has announced a relief package for small-business customers.
The package includes a deferral of principal and interest repayments for all term loans and retail loans for six months, for small business customers with less than $3 million in total debt owed to credit providers.
At the end of the deferral period, businesses will not be required to pay the deferred interest in a lump sum. Either the term of the loan will be extended or the level of loan repayments will be increased.
The move, which has been given interim authorisation by the Australian Competition & Consumer Commission (ACCC), applies to all ABA member banks who agree to participate, including:
- AMP Bank;
- Bank Australia
- Bank of Queensland Limited
- Bendigo and Adelaide Bank Limited
- Commonwealth Bank of Australia
- Macquarie Bank
- National Australia Bank
- Suncorp Bank; and
The relief package will apply to more than $100 billion of existing small-business loans, which according to the ABA, could provide up to $8 billion of relief to the sector.
“This is a multibillion-dollar lifeline for small businesses when they need it most, to help keep the doors open and keep people in jobs,” ABA CEO Anna Bligh said.
“Banks are putting in place a fast-track approval process to ensure customers receive support as soon as possible.
“Australia’s banks have supported the country through difficult times in the past and continue to do so.”
Ms Bligh said the package would complement the federal government and the Reserve Bank of Australia’s (RBA) stimulus packages for small businesses.
“Over the last few days, banks have worked closely with the Treasurer and the government to identify measures to support the economy through this crisis,” she said.
“Small businesses are the most vulnerable part of the economy and have the most urgent need for assistance.
“Small businesses employ 5 million Australians, and this package is designed to help them keep doing just that.”
She continued: “Small businesses can rest assured that if they need help, they will get it. Banks are already reaching out to their customers to offer assistance and packages will start rolling out in full on Monday.”
ACCC provides interim authorisation for new package
The Australian Competition and Consumer Commission (ACCC) has provided urgent interim authorisation to allow the banks to implement the package.
The ABA CEO noted that mortgage customers would not be eligible for repayment relief at this stage, but added that banks would consider the move if the situation deteriorates. Several lenders, including ANZ, Bendigo and Adelaide Bank, La Trobe Financial, Mystate Bank NAB and Westpac, have already begun offering repayment holidays to mortgage customers.
“The package that supports small businesses is designed to impact the most critical and urgent need, and that is loan repayments for small businesses,” Ms Bligh said.
“At this stage, banks report that they are not seeing any high volume of anyone in distress with mortgages, but what they are seeing is a rapidly and exponentially increasing volume of calls from small businesses in distress and unable to meet payments.
“This package is designed to go [as] fast as possible to small businesses because that is where it is needed most today in order to avoid more people being out fo work and then falling into mortgage stress.”
Ms Bligh added: “We understand that this is a very rapidly moving circumstances. As the government is having to evolve their response, if there is a need as it emerges in relation to mortgages, we will of course look at what might need to be done.”
This comes just a day after Prime Minister Scott Morrison announced that in addition to the $17.6 billion stimulus package announced earlier this month, the government would provide $15 billion in new funding for low-cost small-business loans, facilitated by the Australian Office of Finance Management (AOFM).
Following its cut to the cash rate, the RBA also announced a new term funding facility (TFF) for the banking system, aimed at supporting the flow of credit to small and medium-sized businesses by providing authorised deposit-taking institutions (ADIs) with three-year funding facilities at a fixed rate of 0.25 per cent.
Under the TFF, ADIs will be able to obtain initial funding of up to 3 per cent of their existing outstanding credit and will have access to additional funding if they increase lending to business, particularly small and medium-sized businesses.
The Australian Prudential Regulation Authority (APRA) has also announced that it will make temporary changes to its expectations regarding bank capital ratios to “ensure banks are well positioned to continue to provide credit to the economy”.
APRA noted that with banks maintaining capital levels “well above minimum regulatory requirements”, it would be appropriate to enable them to use the “large buffers” they’ve established to facilitate ongoing lending to the economy.
As a result, provided that banks meet their minimum capital requirements, it “would not be concerned” if they were not meeting the additional benchmarks announced in 2016 during the period of disruption caused by COVID-19.
[Related: New triple-pronged lending boost announced]
Charbel Kadib is the news editor on the mortgages titles at Momentum Media.
Before joining the team in 2017, Charbel completed internships with public relations agency Fifty Acres, and the Department of Communications and the Arts.