How solid financial systems with support from Banks can help in recovery of Pandemic-hit Economies

Despite the world being on tipsy toes, the growing pandemic-led chaos is making deep holes in the world economy. A precipitate shock like this is inducing the policymakers to pull rabbits out of the hats across the world.

Yet no is one sure when this would end or when our lives would return to normal. However, one thing that is clear at this juncture is that the ramifications of this shock are likely to change world order of policy thinking – given the failure of some highly developed nation in tackling the COVID-19 crisis.

Banking industry in our country boasts of one of the highest reserve requirements, allowing to absorb such shocks. Presently, the same banking industry, which had been criticised in the aftermath of the Haynes Royal Commission – is likely to act as a saviour in this crisis.

The Reserve Bank of Australia (RBA) had already introduced moves out of its playbook, triggering interest rate cuts, liquidity measures, as well as target responses for the areas of economy presently in distress.

It is not only the RBA that is doing its part to support but all the financial regulators in the country. In the latest quarterly statement by the Council of Financial Regulators, the body notes that robust financial systems are required to support the economy as well as in the orderly working of markets.

Also Read: Policy Response Series: RBA Set To Fix Front End Of Curve, Cash Rate Hits Record Low

Quarterly meeting between the regulatory bodies was also attended by the Australian Treasury and the Australian Office of Financial Management. During the quarterly meet, the council members discussed the ongoing market developments, preparations of institutions and the policy responses that are initiated domestically as well as internationally.

Apart from the RBA, Australian Prudential Regulation Authority (APRA) had announced that temporary relief on capital ratios would be provided to the banking system in an effort to keep the funding levels robust of the Australian businesses.

Likewise, the Australian Securities & Investment Commission (ASIC) has announced measures to maintain resilience in the equity markets, and it continues to monitor the market performance and infrastructure.

APRA and ASIC also noted that additional measures would be introduced to reprioritise the regulatory duties and soften the regulatory requirements for the institution under regulation amid this crisis.

It said, the members of council, the Government and the banking sector have been working together to address the disruptions caused by COVID-19 on the economy. The members also appreciated the measures introduced by the Australian Banking Commission for the small businesses in the country.

Also Read: Fiscal Stimulus In Full Swing; PM Unleashes Another $66b, Room for More

Besides, the members stressed on the policy issues that are not directly related to coronavirus, including the public consultation on the Financial Market Infrastructure Regulatory Reforms – it is intended that the proposed reforms would enable renewed workflow in the distressed domestic clearing, settlement systems and regulatory powers.

Big Four banks deliver again

Commonwealth Bank of Australia (ASX:CBA)

Commonwealth Bank extended its support for the Australian businesses impacted by the coronavirus, it announced that it would be providing repayment relief of up to $3.6 billion to its business customers.

As a result of the new measures - which includes additional repayment deferrals, merchant fee waivers, and customised solutions for large businesses – it would mean $600 million worth of cash flows going back to businesses each monthly.

It was said that over 99% of CBA’s business clients are able to avail loan repayment deferrals, and these measures include the following:

• Six month loan deferral with business lending limits of up to $10 million, previously $5 million
• Automatic merchant fee waiver for over 70k small businesses
• Customised solutions for the bank’s large customers
• Around $1 billion in benefits for the bank’s commercial property customers

On 31 March 2020, CBA was trading at $66.210, up by 3.5% from the previous close (As on 31 March 2020, AEDT: 1:49 PM).

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Also Read: Impact of COVID-19 pandemic on Australian Banking Sector

Westpac Banking Corporation (ASX:WBC)

Westpac also extended its support for its business clients, and the new relief package was extended to the commercial property clients as well. Its relationship managers across the brands would provide support to the large clients.

Some of the measures introduced by the bank include:

• Deferral on repayments of principal and interest payments to eligible businesses having lending exposure of up to $10 million
• Unsecured business loan of up to $250k for new and existing customers having turnover of less than $50 million for a three-year tenure
• Restricting and consolidation of existing lending
• Deferral of credit card payments for 3 months

On 31 March 2020, WBA was trading at $17.260,up by 6.8% from the previous close (As on 31 March 2020, AEDT: 1:49 PM).

National Australia Bank Limited (ASX:NAB)

NAB’s CEO Ross McEwan noted that the bank has received more customer query calls in the past five days than the bank normally receives in the entire year. Mr McEwan said that around 25k individuals and small businesses needed access to relief package and over 200k customers called the bank or visited branch.

He said that the bank has been providing significant relief to homebuyers as well as businesses, and the bank strongly endorses the efforts made by the Government to keep the economy moving.

NAB, in partnership with the Government, is providing $250k loan at 4.5% with no repayment in the initial six months. Its branches are operating and around 750 NAB employees are taking training.

Further, the bank also announced similar measures like the other banks, including a six months repayment deferral for small businesses having facility of up to $10 million, which includes more than 98% of the NAB business clients.

On 31 March 2020, NAB was trading at $17.220, up by 5.6% from the previous close (As on 31 March 2020, AEDT: 1:49 PM).

Australia & New Zealand Banking Group (ASX:ANZ)

ANZ also introduced the six months repayment deferral for businesses having facility of up to $10 million, which was $3 million earlier.

ANZ’s MD for Commercial Lending, Isaac Rankin noted that the bank’s original relief package had provisions for the larger businesses. He stated that the new relief package to large proportion of commercial tenants.

Also, the measures cover around 90% of the commercial landlords – if the landlords do not terminate leases or evict the existing tenants for rent arrears due to COVID-19.

On 31 March 2020, ANZ was trading at $17.63, up by 5% from the previous close (As on 31 March 2020, AEDT: 1:49 PM).

Bottomline

Given the scale of the coordinated policy efforts by the policymakers, and the resilience of the Australian banking sector – the floor for an economic rebound of the Australian economy appears to be taking shape in a calculated manner.