The liquidity phase of the crisis “is giving way to a solvency phase,” and the RBA is now touting the truth that was always there at the outset of the Covid recession.
Jonathan Kearns, head of financial stability at the Reserve Bank, wasn’t too keen to tease this out in his talk to the Australasian Finance and Banking Conference in Sydney.
“In Australia the economic shock is much larger than it was in the GFC and for many decades before that,” Kearns said.
“Australian banks are better prepared than they were prior to the GFC. Their much higher liquid asset holdings helped earlier this year. Banks are well capitalised. Importantly they have large buffers which are there to be used, not preserved, and will enable them to continue lending and supporting their customers, and so the economic recovery,” he said.
Rightio.
Well, 10 million new businesses need guidance and funding to replace the 2 million businesses either soon to be thrown (or already thrown) overboard in Australia by the pandemic. And for now there is no rush to serve, save for fintechs.
Kearns promoted “the balance sheet strength along with the low level of interest rates and [the regulatory accommodation [that] has enabled Australian banks to provide loan repayment deferrals to households and small and medium businesses”.
At the peak, 10 per cent of housing loans and 17 per cent of SME loans had deferred repayments.
“With the economic contraction less severe than initially feared, and the recovery underway, many borrowers have resumed loan repayments and now only a little over 3 per cent of both housing and SME loans have repayment deferrals,” Kearns said.
“By hibernating the repayments of borrowers facing temporary liquidity strains, loan repayment deferrals avoided unnecessary household and business defaults, and the impairment to their balance sheets and adverse long-run effects. Loan deferrals also avoided the asset fire sales that can result from borrowers who are in or near default.”
The RBA’s head of financial stability broke the party line a little in his virtual speech for the confab at UNSW in Sydney.
“It is important that loan repayment deferrals are temporary and are not used to hide problem loans,” Kearns said, though deferrals were designed for this effect.
Banking Day is not buying the substance of this account, and Kearns was in APRA’s hands here.
Maybe Aussie’s are tryers and achievers and frightened of debt collectors and a low credit score, so, for reasons of personal responsibility and ongoing access to finance, they stepped up and did the right thing.
Plenty did, sure – not me.
If the official accounts are solid, 1400 bps out of 1700 bps (82 per cent) of SMEs sorted their shite, dreamed they never did make all those sad plans to shut down and if need be sleep in swags.
The propaganda fed to the people is that the worried sick filled in the forms, followed the procedure and even took tea with an IBM Watson to smooth it all over with the bank.
Banking broken SME core have seemingly unearthed financial firepower many business owners were