If you’re a small business looking for relief, go in hard with your bank. The authorities are expecting them to help you, writes Robert MacDonald.
Australia’s banks have a unique opportunity to prove they’re really not bastards.
One of the big differences between the Global Financial Crisis of a decade ago and today’s coronavirus pandemic is that back then, the banks were the patients.
They’d been laid low by a sudden loss of trust in the world banking system – brought on by the risky sub-prime mortgage lending practices of US financial institutions.
Liquidity dried up, freezing up the global banking system. The Rudd government responded by taking the unprecedented step of guaranteeing more than $2 trillion of bank deposits and wholesale funding.
The banks survived and prospered and, by the evidence of the Hayne royal commission, quickly forgot, the literal debt they owed to Australian taxpayers.
But now, the banks are a crucial part of the cure.
The good news is the banks know it. After all, if ever there were an opportunity for an on-the-nose financial sector to win back the public’s trust, this is it.
“Small businesses can rest assured that if they need help, they will get it,” Australian Banking Assocation CEO Anna Bligh has said.
The Australian Banking Association was quick to announce that its members would be offering six-month suspensions on small business loans for companies affected by the virus. Importantly, it’s on a self-assessment basis.
The ABA doesn’t yet have numbers on the take-up rate of the offer but says its members are getting thousands of calls a day.
It has estimated the assistance package would apply to more than $100 billion of existing small business loans and, depending on the response, could put as much as $8 billion back into the pockets of small businesses.
Some banks are also offering mortgage relief and fee waivers.
But the even better news is that the banks are well able to offer even more relief and support for small businesses.
They’ve got so much money in their capital reserves – the funds they have to set aside to underwrite their operations – that the Australian Prudential Regulation Authority – the agency in charge of making sure the banks don’t fail – took the rather remarkable step of recently issuing a statement saying that, “given the prevailing circumstances”, the banks “may need to utilise some of their current large buffers to facilitate ongoing lending to the economy”.
And the buffers are huge.
At the end of 2019, the Australian banking system had $235 billion in capital reserves – $17 billion more than they need by law.
APRA is, quite specifically, expecting the banks to dig into those reserves to keep businesses alive during the current crisis.
To quote APRA chair, Wayne Byres:
“APRA has been pursuing a program to build up the financial strength of the system for many years, when banks had the capacity to do so. As a result, the Australian banking system is well-capitalised by both historical and international standards.
“APRA’s objective in building up this capital strength has been to ensure it is available to be drawn upon if needed in times such as this.”
And to quote Reserve Bank Governor, Philip Lowe:
“Australia’s financial system is resilient and well placed to deal with the effects of the coronavirus.
“Substantial financial buffers are available to be drawn down if required to support the economy.
“The Reserve Bank is working closely with other financial regulators and the Australian Government to help ensure that Australia’s financial markets continue to operate effectively and that credit is available to households and businesses.”
All of which suggests that if you’re a small business needing help from your bank, go in hard.
The regulatory authorities have given banks the green light to be considerate to their small business clients.
And if they’re not … well then, they’d have to be bastards.