LoanSleeper widened as income support cut

Ian Rogers

Philip Lowe and Josh Frydenberg will take it in turns today to reframe the macroeconomic narrative in Australia, and perhaps temper the acute unease around the board tables of the 100-plus banks and credit unions composing their full-year financial reports, and the whopping credit losses the industry overall must begin to account for.

Treasurer Frydenberg is expected to confirm the headline items from Thursday’s mini-budget, above all the reduced wage subsidies (or JobKeeper) – which will be cut to a maximum of A$1200 a fortnight from $1500 now – and the dumbed down dole (or JobSeeker), with both payments extended by six months to March 2021

If the briefings for The Australian and the Financial Review this morning are correct the JobKeeper subsidy will be replaced by two tiers of payment “to more closely reflect the incomes of people before the crisis struck,” as the AFR reports.

Sector-specific targeting may be explained by Frydenberg, some mix of the populist, the essential and the neglected.

At lunch time, Dr Lowe, the Reserve Bank governor, will deliver (by webcast) his annual talk to the Anika Foundation Luncheon.

His topic: “COVID 19, the Labour Market and Public-sector Balance Sheets”. Lowe’s update for banks and the capital market will be keenly followed. (And the webcast link, again).

One notionally critical prop in allowing Australia to defer the much-discussed “September cliff” is the renovation of the arrangements to encourage business lending – and for now the Treasury side of that policy is messy. So lenders will be looking for plenty of guidance from Dr Lowe.

Banks, credit unions and fintechs may be as mystified as their business clients as to the import of the yesterday’s announcement by Frydenberg as another prelude to his economic statement in two days’ time; the underwhelming SME Guarantee Scheme for business lending is being retooled and extended – not that there’s much evidence of demand for credit.

From October 1, the key changes to the SME Loan Guarantee include:

• loans can be for a wider range of investment, beyond working capital;
• secured lending will now be permitted (with a caveat - this excludes commercial or residential property);
• maximum loan size increased to $1 million (from $250,000 per borrower);
• maximum loan term now five years (from three years), and
• lenders can now offer a repayment deferral period.

Curiously, Treasury and Frydenberg could cite only month-old data on the state of play with the current scheme: there are 44 approved lenders under the existing scheme which, Frydenberg said, has “seen more than 15,600 businesses accept loans worth $1.5 billion”.

Over at the Australian Banking Association, CEO Anna Bligh said in a media release: “the banking industry will continue to work with the government ensuring the flow of credit into the economy and supporting those businesses who are still feeling the effects of the pandemic.”

Banking Day has recently reported (here and here) and the Treasurer confirms, there is no credit flow of note, not via the SME scheme, nor more broadly. Though Dr Lowe today may share the most up to date data on banks use off the Term Funding Facility and the RBA's optimism of credit flows (if any).

The initial phase of the SME Guarantee loans scheme remains available for new loans issued by eligible lenders until 30 September 2020.

The second phase of the Scheme will start on 1 October 2020 and will be available until 30 June 2021.