Small ADIs passed up TFF funding

John Kavanagh

Small banks and foreign banks took up only around half their allowance under the Reserve Bank’s Term Funding Facility.

The RBA has provided a wrap-up of use of the TFF in the latest Statement on Monetary Policy. The TFF provided A$188 billion in funding to banks, equivalent to 6 per cent of credit.

The major banks and mid-sized Australian banks took up all their allowance. Small banks and foreign banks took up a little over half.

The RBA said some of these banks had very small allowances and may not have considered it worthwhile.

Some others with larger allowances did not have ready access to collateral.

The TFF offered three-year funding at low rates – 25 basis points initially and then 10 bps after November last year.

Compared with those rates, the RBA said the estimated cost of securing three-year unsecured funding in domestic wholesale debt markets for the major banks was 60 bps in June.

The initial allowance, which ran until September last year, was equivalent to 3 per cent of each bank’s total credit outstanding.

A supplementary allowance, which ran from October last year to the end of June, was equivalent to 2 per cent of each bank’s total credit outstanding.

There was an additional allowance for banks that expanded their business credit portfolios.

The RBA said that in addition to the direct impact on bank funding costs, the TFF has also had an indirect impact. The lower supply of bank bonds has narrowed spreads in the secondary market, thereby reducing the cost of new issuance.

It said the refinancing task the banks face as TFF borrowings mature is “sizeable but manageable”.