Banks, regulators come together in a crisis

Banks, the regulators and the federal government are all in lock-step about the need to move fast and go big with assistance packages for business. Picture: Vanessa Hunter

What a difference a crisis makes.

Ever since he was treasurer, Scott Morrison has made an art form of bashing the banks.

Some of it was justified but some of it was also Donald Trump-style populism that helped to justify the big tax slug announced in the 2017 budget and the introduction of the bank executive accountability regime and then the royal commission (called by the Turnbull government to effectively undermine then-opposition leader Bill Shorten’s plans to use it as an election platform).

Then there were the rumblings about Anna Bligh, a former Labor Party premier, taking over as chief executive of the Australian Banking Association despite her experience as Queensland treasurer and then state leader, when she handled several crises.

The banks it seems could do no right. Heads rolled and every financial regulator was coming after them.

As 2020 started, there were rumours of ASIC launching more big legal actions including possible criminal actions against unnamed banks and unnamed bankers in the wake of the Hayne royal commission report.

Fast-forward to today when Australia faces one of it's the biggest ever challenges — the biggest in most of the population’s life times.

Now the banks, the regulators and the federal government are all in lock-step about the need to move fast and go big with assistance packages for business, especially small business, to cushion the impact of the coming recession and try to prevent it becoming a full-blown depression.

It was significant that it was the ABA that announced an agreement to provide an unprecedented six-month holiday on interest repayments for small business.

It is a serious, sensible and significant measure that will apply to more than $100bn of small business lending, which the ABA estimated could put as much as $8bn back into the pockets of small business over the period.

And the ABA reiterated the message on Sunday, as the government announced its $40bn small business loan guarantee scheme.

“This is a time for close co-operation between government and our banking sector and the industry will continue to play their part to build the economic bridge to recovery,” Ms Bligh said. 

Sadly, both packages won’t stop many small businesses, which also have to pay staff, rent and utilities, from going to the wall — particularly if they don’t have any customers coming in through the door.

But it will help some of the better-placed to cope.

In another era, an across-the-board move by the banks would have been roundly criticised as a collusive practice.

Remember the banks are now expressly forbidden from doing anything that looks like “price signalling”.

Friday’s ABA statement is just that — a collective decision by all the banks. But it was a much-needed move that will be welcomed by small business.

Having every bank in Australia with a slightly different policy on interest rate holidays for small business — maybe some for three months and some for six and some for seven or nine — would have been confusing for individual businesses and created unnecessary bank-hopping, which would not have been in the best interests of the business nor the banks themselves trying to nurse customers through the crisis.

Bligh said banks were currently contacting all their small-business borrowers to alert them of the interest rate holiday and how it will work.

The announcement followed consultation with bank regulator the Australian Prudential Regulation Authority (APRA) and the Australian Securities & Investments Commission (ASIC).

The ABA is also running the move past competition regulator the Australian Consumer & Competition Commission (ACCC) for “authorisation”.

At times like the current crisis, Bligh’s considerable experience as a political leader is playing a critical role behind the scenes.

In announcing the package, her message was clear and reassuring.

“Small businesses are the most vulnerable part of the economy and have the most urgent need for assistance,” she said. Small businesses employ five million Australians and this package is designed to keep them doing that.

“Small business can rest assured that if they need help they will get it.”

Bligh said the package followed hours of meetings this week with the federal government and regulators. As she said: “This country needs all its institutions working together co-operatively and in the national interest.”

Similarly ASIC sensibly announced that companies could postpone their annual meetings for two months and it supports the idea of virtual annual meetings if they can be organised and can give shareholders opportunity to participate.

It must be a big change in thinking from an organisation that has been under pressure to hit business with more aggressive legal actions.

Regulators now have to proactively work with business, which generates most of the jobs in Australia — as well as have their corporate cop hat on.

Friday also saw the banks respond to Thursday’s big package of announcements from the Reserve Bank, which is offering an extra $90bn to make it easier for them to lend more to business, particularly small business, and the Commonwealth Bank’s bold move to cut its rates on small business loans by a full 100 basis points.

Each bank has reacted on a slightly different way, with different cuts on small business loans and mortgages and different cuts in fixed and floating loans, no doubt with one eye aimed at showing their different competitive offerings.

ANZ, for example, cut its variable small business loan rates by another 25 basis points, making a 50 basis point cut over the past two weeks, and a cut of 0.8 per cent on two and three-year fixed-rate loans for secured small business loans.

Business specialist NAB has been particularly aggressive, announcing it would cut variable loans on small business rates by 100 basis points, adding to the 25 basis point cut on March 13, as well as slashing 200 basis points on the rate for new small business loans.

It is cutting its rates on fixed-rate mortgages by up to 60 basis points and giving home loan customers experiencing financial challenges a repayment holiday of up to six months.

Westpac announced a $10bn home-lending fund, a reduction in the overdraft rate for small business by 200 basis points and a 100 basis point reduction in variable rate loans to small business.

In short, any borrower — a mortgage holder or small to large business borrower — who is ­experiencing financial difficulties should contact their bank as soon as possible to see what is on offer.

The next few months could see bank bad debts skyrocket but the alternative of not offering new assistance packages for their customers could be far worse.

Concerted action between government, regulators, commercial banks and the Reserve Bank can help cushion the severity of the downturn.

Fancy fintechs and new non-bank entrants can give good public relations pitches.

But it is the banks — particularly the big ones — that have the greatest capacity to brace the economy against the shock of what is to come.

Anyone looking for a lesson on the importance of having a strong banking system should look no further than the actions announced this week and what will probably need to occur in the months ahead.