Taxpayer guarantee for loans on agenda

National Australia Bank chief Ross McEwan has confirmed discussions are under way about a form of taxpayer guarantee for business loans.

NAB Chief Executive Officer Ross McEwan says the COVID-19 emergency happened ‘so quickly for so many businesses’, unlike the GFC which ‘rolled through’ the global economy for six to 12 months. Picture: AAP

National Australia Bank chief Ross McEwan has confirmed discussions are under way between the Morrison government and the major banks about a form of taxpayer guarantee for business loans, while drawing a sharp distinction between the 2008 financial crisis and the economic jolt caused by the coronavirus.

The big four bank boss said the COVID-19 emergency had materialised “so quickly for so many businesses”, unlike the GFC which “rolled through” the global economy for six to 12 months.

“If you want to pick up a cab or go to a cafe or restaurant at the moment, they’ll tell you how quickly this has happened, and I don’t think we’ve seen that before,” he told The Weekend Australian.

His comments came as the major banks outlined an $8bn rescue package for small to mid-sized businesses, which have on the front line of the downturn in the economy caused by the coronavirus pandemic.

Among packages outlined with this week’s emergency Reserve Bank interest rate cut, banks will defer loan repayments for six months for struggling small businesses and slash lending rates for business customers.

Mr McEwan said NAB would work with the government on proposals for a taxpayer guarantee of business loans, similar in principle to the £330bn ($655bn) package announced earlier this week by the British government.

“There’s been no package (in relation to a guarantee),” he said.

“We’ll wait and see what the government comes up with.”

One source said the proposal was very much alive, with feedback sought from the banks on Friday.

However, it would not be ready for inclusion in the government’s much-trumpeted second stimulus package, which could be unveiled as soon as Sunday. Acting Westpac chief executive Peter King said in an editorial for The Weekend Australian that the bank had spent the past decade or so building up its buffers so it could lend and help customers and the economy through a major shock.

“That time has arrived and Westpac is able — and willing — to play our part, having many experienced people who have been through challenging economic times before during our more than 200-year history,” Mr King said. “Because if there’s one thing I know, the nation will get through this.”

The brace of stimulus and assistance packages saw shares in three of the big four stage a rally, with Westpac leading the charge, up $1.24, or 8.5 per cent, to $15.77.

NAB gained $1.09, or 7.5 per cent, to $15.66, with ANZ was 6.8 per cent higher at $16.02.

Commonwealth Bank was the laggard, down $1.04, or 1.7 per cent, to $59.91.

A senior banker at one of the big four said that the industry was “shovelling billions out the door” to try to contain the economic destruction caused by the virus.

After the Reserve Bank staged a heavy-handed intervention on Thursday to lower bank funding costs, including a $90bn, three-year funding facility at a fixed rate of 0.25 per cent, the banks followed up on Friday with a small business relief package through their industry body, the Australian Banking Association.

Individual banks later released enhanced packages, with some extending the ABA announcement to personal customers.

ABA chief executive Anna Bligh said the industry would defer loan repayments for six months for small businesses hit by the coronavirus.

The package, she said, would apply to more than $100bn of existing small business loans, and could put as much as $8bn back into the economy depending on the take-up.

“This is a multi-billion-dollar lifeline for small businesses when they need it most, to keep the doors open and keep people in jobs,” Ms Bligh said.

“Banks are putting in place a fast-track approval process to ensure customers receive support as soon as possible.”

ABA members, she said, had experienced a “rapid and exponential” increase in calls from small business customers unable to make their loan repayments.

A banker predicted the entire industry would be “bowled over in the rush”, with call centres likely to be under extreme pressure for weeks.

The co-ordinated response from the banks attracted the intervention of the competition watchdog, which agreed to an urgent interim authorisation to allow the industry to work together on the package.

Australian Competition & Consumer Commission chair Rod Sims said the watchdog recognised the significant hardship experienced by small businesses and their staff in the “unprecedented” crisis.

“We recognise the urgency of this issue,” Mr Sims said.

“We consider that this relief package will enable banks to quickly provide relief to impacted businesses, and allow them to keep employing their staff.”

The ACCC chairman noted that the authorisation still enabled individual banks to offer better terms to their own customers.

Three of the big four banks rolled out their tailored assistance packages on Friday, after CBA was first out of the blocks the day before.

CBA, however, topped up its package in response to some of the more generous terms offered by its rivals, offering loan deferrals of up to six months to home loan customers as well.

The move will provide up to $10bn of support to the economy.

The bank said it would auto-enrol 76,000 businesses into loan deferral arrangements for up to six months.

NAB, Westpac and ANZ Bank offered six-month repayment holidays to mortgage customers affected by the coronavirus outbreak, but ANZ was the first lender to announce a cut in its standard variable rate. It introduced a two-year fixed rate of 2.19 per cent — a record low for ANZ.