Bank drawdowns on $90bn TFF dry up

In March, the Reserve Bank of Australia (RBA) launched a $90-billion term funding facility (TFF) as part of its response to the economic fallout from COVID-19.

The TFF is 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 can drawdown on 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 (SMEs).

However, an analysis by ANZ Research has revealed that as at 17 June, only $11.5 billion had been drawn down from the TFF by Australia’s banks.

In the week to 17 June, banks accessed $941 million from the TFF, which ANZ Research noted was a “considerable step down” from $4.3 billion in the previous week.

This leaves approximately $72.5 billion in funds available for the banks to draw down over the coming months, with the TFF expiring on 30 September.

“This implies a linear run rate from here of $4.84 billion per week until the end of September,” ANZ Research observed.

This comes amid an analysis from ratings agency Moody’s Investors Services, which found that the federal government’s $260-billion stimulus program – which included cash payments to households – and the RBA’s associated quantitative easing (QE) program have provided an abundance of liquidity to the banking sector in recent months.  

Moody’s noted that such measures have driven strong monthly growth in deposits across the banking system, up 5.2 per cent in March and 2.4 per cent in April.

This compares to average monthly deposit growth of 0.8 per cent over the 12 months to March 2020 and has resulted in the issuance of approximately $108 billion in debt securities among the big four banks during respective 2019 fiscal years.

“This significant deposit growth has lowered banks’ risk of short-term liquidity constraints, with short-term bank securities outstanding declining to $16.7 billion from $20.1 billion over the first quarter of 2020 and likely to continue declining over the next six months,” Moody’s stated.

As a result, the RBA has paused its QE program, after purchasing approximately $54 billion in government bonds from the banks.

However, in minutes released from the RBAS’s June monetary policy board meeting, the central bank noted that it was “prepared to scale up these purchases again, if necessary, to achieve the yield target and ensure bond markets remain functional”.

[Related: RBA optimistic amid early COVID relief]