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Lender warns government over TFF inequalities

Non-bank lender Firstmac has suggested that the RBA’s term funding facility could “kill off competition in the home lending market” by putting non-banks at an unfair disadvantage.

The term funding facility (TFF), launched by the government and run by the Reserve Bank of Australia for the banking system, is aimed at supporting the flow of credit to small and medium-sized businesses by providing authorised deposit-taking institutions (ADIs) with funds.

Under the initial TFF, ADIs would be able to access three-year funding facilities at a fixed rate of 0.25 per cent.

ADIs were 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.


In September, the TFF was expanded to enable ADIs to have access to additional funding, equivalent to 2 per cent of their outstanding credit, at a fixed rate of 25 basis points for three years. 

ADIs would be able to draw on this extra funding until the end of June 2021, ensuring that all ADIs continued to have access to the TFF after the initial deadline of 30 September 2020.

The availability of additional allowances associated with an ADI’s growth of business credit would also be extended beyond the end of March 2021 to the end of June 2021. 

According to non-bank lender Firstmac, the federal government is placing non-ADIs at a disadvantage by not enabling them access to similar cheap funding, which managing director Kym Cannon warned could “kill competition in the home lending market for a generation”.

“By giving cut-price money to the banks alone, the government is subsidising them to increase their market share at precisely the time when it should be protecting competition for consumers,” Mr Cannon said.  

“If this continues, we are going to see a repeat of the GFC where the banks emerge completely dominant at the end of the crisis, and are able to charge what they want and do whatever they want, with few challengers strong enough to offer a real alternative.”  

Mr Cannon suggested that the TFF scheme had enabled big banks to borrow money from the government at “the incredibly low rate of 0.25 per cent”, while competitors “must continue to borrow on international markets at 1.35 per cent or more”.  

This has allowed the big banks to launch a “government-subsidised, fixed-rate assault” on the home loan market, offering “artificially low” two to three-year fixed rates to poach their smaller competitors’ customers, he suggested.

Mr Cannon said the government must urgently restore a level playing field by opening the TFF program to non-bank lenders and expanding access for smaller ADIs, including fintechs, who are limited to a token sum.  

“This program threatens to derail the government’s entire strategy of fostering competition in lending, and the only way to fix it is to re-establish a level playing field, either through extending it to other lenders or by offering equivalent subsidised funding through another mechanism,” Mr Cannon said. 

“This will ensure that borrowers still get access to subsidised loans to stimulate the economy, while avoiding the completely unnecessary collapse of long-term competition in the market and all of the problems that come with that.” 

[Related: RBA notes ‘subdued’ business loan activity]

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