The Reserve Bank has responded to charges from the non-bank sector that its term funding facility has created anti-competitive distortions that favour the banks, saying its support is relatively modest and the banks’ pricing advantage is only at the margin.
RBA assistant governor Christopher Kent said: “The question is whether the term funding facility is creating a distortion.
“Our focus is on lowering funding costs and that includes the work of the Australia Office of Financial Management. The outcome is that we are getting strong competition for high quality borrowers.”
Speaking at the Australian Securitisation Forum’s Virtual Symposium yesterday, Kent acknowledged that there was a funding gap between ADIs’ cost of funds and non-banks’ cost of funds.
However, he said: “I would put it in perspective by saying the amount of funding is modest. It has an effect at the margin. There has always been a gap in the funding costs for ADIs and non-ADIs. I don’t think the gap has opened up as a result of our actions.”
Kent also said there may be other factors at play, such as the possibility that the customers which non-banks service may be harder hit by the economic fallout from the pandemic than other borrowers.
The RBA set up the TFF in March, giving ADIs access to A$90 billion of funding at a fixed interest rate of 25 basis points for three years.
ANZ noted in its 2019/20 financial report that it drew down $13 billion under the TFF in the year to September, NAB drew down $14.3 billion over the same period and Westpac drew down $17.9 billion.
Funds available under the TFF were increased by $57 billion in September and the interest rate was cut to 10 bps earlier this month.
Speaking at the ASF conference on Monday, Firstmac chief financial officer James Austin said that while non-banks have had the benefit of the AOFM’s Structured Finance Support Fund to assist with their securitisation programs, they have not been given access to the TFF.
“We are paying 140 basis points for funding and ADIs are paying 10 bps,” Austin.
Another speaker at the conference, Athena Home Loans chief operating officer Michael Starkey said yesterday: “It is a material dislocation. The RBA says the funding difference is not that much but the marginal cost is important.
“The banks are getting free money and they are turning that into very sharp offers on fixed rates. Market share is going back to the banks.
“If the TFF expired in September, as originally planned, we could live with it. But now it is going into 2021. It is incumbent on the government and the RBA to come up with something that is more competitively neutral.”
The manager of securitisation at AFG, Toni Blundell, said: “We feel there have been some unintended consequences. The combination of the TFF money ADIs are borrowing and very low-rate deposits make it very difficult for us to compete on new lending.
“Customers are looking to repay their loans and we can’t match the refinancing rates. The ADI funding regime has definitely created an imbalance.”