Canberra urged to keep credit flowing to non-bank lenders

Non-bank lenders are seeking funding ­access on a similar footing to the banking sector to keep credit flowing to consumers.

Scottish Pacific chief executive Peter Langham. Picture: John Feder

Non-bank lenders are urging the federal government to ensure that they have adequate funding ­access on a similar footing to the banking sector, as measures to keep credit flowing are rolled out to help shield the economy from the COVID-19 impact.

The government and central bank have announced a range of initiatives aimed at boosting cheap funding to lenders so businesses can access loans as the virus grips the economy.

They include the Reserve Bank’s $90bn funding facility for banks and the $15bn announced through a Structured Finance Support Fund to assist non-bank lenders in the tough climate.

The latter sees the Australian Office of Financial Management (AOFM) buy into tranches of loans, packaged up by non-banks and smaller lenders.

The federal government also this month unveiled a $40bn scheme which sees it guarantee 50 per cent of new unsecured loans issued by eligible lenders to small and medium businesses.

The Australian understands Treasury is set to release further details on the loan scheme and has called for expressions of interest to be lodged by lenders as early as Monday.

Some industry players are hoping to draw on existing credit policies as part of the scheme, while others are looking through the current period to make a credit assessment of businesses.

Still, several non-bank lenders think more needs to be done to ensure their sector can continue to fund business loans through the unfolding COVID-19 pandemic crisis.

Scottish Pacific chief executive Peter Langham said it was taking too long for credit to find its way to fragile businesses, which could be aided by increased levels of government support and bank funding to non-bank lenders.

“It’s not flowing through to the economy or to the business sector, it is just not happening quick enough,” he said.

“We really need that to flow through to the non-bank sector.”

Scottish Pacific, a working capital provider owned by private equity, has six different funders for its business including two overseas banks and domestic players.

While Mr Langham said the firm had ample funding to support its customers and other businesses, other non-banks weren’t as fortunate.

“There are ways we can help but not in all cases,” he said, noting the non-bank sector needed similar relief to the bigger end of town to be able to grant concessions such as repayment pauses.

Critical support

During the global financial crisis and its fallout there was an ­extension of AOFM’s investment in the securitisation market to $20bn.

Another senior industry player, who declined to be named, said the $15bn set aside for the structured finance fund may not be enough if the COVID-19 crisis became protracted.

“They will have to double that if it lasts six to 12 months,” he said, noting much also depended on how loan demand held up.

Australian Finance Industry Association (AFIA) chief Diane Tate welcomed the government’s initiatives saying as a package they provided “critical support” for funding markets and helped to normalise the cost of capital.

The government and other stakeholders were working “really hard and collaboratively”, and she expects non-banks will indirectly benefit from the RBA’s $90bn facility for the banks.

“AFIA has been working closely with the government, AOFM and Treasury on the design and implementation of these initiatives, to make sure smaller lenders can access these programs and continue to provide support to their SME customers through the crisis,” Ms Tate added.

“There will need to be ongoing announcements and initiatives … if there is more need we’ll be asking for more.”

She also urged banks and superannuation funds to continue to provide funding support and keep facilities open for non-bank lenders.

A spokesman for small business lender Prospa said non-bank lenders wanted “simultaneous ­access” to the new $40bn loan scheme, particularly because smaller players were often better placed to get funds more quickly to borrowers through digital channels.

“Every lender is starting to see customers that need more support,” she said. “We are trying to provide appropriate levels of support given the future is so completely unpredictable.”

The AOFM on Friday started the operation of the structured fund, by investing $189m across six tranches of Firstmac’s $1bn mortgage bond.

Others are expected to be beneficiaries of the program — which is similar to that which supported the market during the global financial crisis — in coming weeks.

“The first deal done through the SFSF on Friday has been an important signal to the market in terms of the tranches, investment flexibility and prices. AOFM has expertise in this area, which is ­really critical to making sure businesses and households get access to the credit they need,” Ms Tate said.

Mr Langham said that some of Scottish Pacific’s 2000 small-business customers were experiencing “drastic pain” as a result of shutdowns related to COVID-19, while other businesses were yet to be impacted.

“There is a lot of pain and more coming, people need to be planning,” he said. “It is certainly not going to get any better in the short term.”

Separately, some non-bank lenders, such as Bluestone, have started tightening their credit assessment criteria in the mortgage market, because of greater borrower risk linked to COVID-19.