CEO Vittoria Shortt says ASB plans to use a decent chunk of the funding available to it under the Reserve Bank's Funding for Lending Programme (FLP) during 2021.
Speaking to interest.co.nz after ASB posted a 4% rise in interim profit to $625 million on Wednesday, Shortt confirmed ASB is keen to tap into the FLP funding this year, which it's yet to use.
"Our thinking is that we would be utilising it this year, perhaps not 100% of it, but we certainly intend to start using it this [calendar] year for sure," Shortt says.
Offering banks up to $28 billion of three-year funding priced at the 0.25% Official Cash Rate, the FLP was launched by the Reserve Bank in December. Banks are able to borrow up to 6% of their total outstanding loans to businesses and households, made up of an initial allocation of 4% and an additional incentive-based allocation of 2% based on new lending. Based on ASB's gross lending of $95.5 billion at December 31, it could potentially borrow close to $6 billion through the FLP.
The FLP is designed to provide additional stimulus in response to COVID-19, with the aim of reducing banks’ funding costs, including deposit rates, and lowering borrowers' interest rates. It will create lending capacity for banks, and potentially be used to pay down more expensive wholesale funding. Access to FLP funding is available over a two-year period to 6 December 2022, subject to any extension by the Reserve Bank.
Shortt says ASB may use a decent amount of its FLP capacity this year.
"We intend to use FLP. We'll time it in a way that we think makes sense for demand and balance sheet management purposes," Shortt says.
"Because you can use it whichever way you like, you could just put it into the general mix of the way you fund your business and just average it all out. Or you could choose to direct it in a more purposeful way and pass on more of a benefit in the form of the fact that it's cheaper term funding."
"We debated that and decided we want to direct it in a more purposeful way. And so we debated the various options and the three things we want to focus on initially are 1) businesses that are trying to lower emissions, 2) construction of new energy efficient homes, - that's the supply side of the housing equation, and 3) supporting infrastructure, particularly in regional areas," says Shortt.
"That's what we're signalling and going forward we're just either going to work with individual clients, or we will make announcements around how we intend to practically apply it and make it available."
Asked whether, given ASB and other banks can access FLP funding at just 0.25%, borrowers could expect very low interest rates, Shortt says whilst the intention is to pass on the benefits, she can't talk about specific pricing.
"We'd certainly be thinking about it as a term style of loan... [We] haven't finalised the pricing or the mechanisms yet," she says.
Given banks are flush and the housing market, where New Zealand banks do the majority of their lending is red hot, it's questionable whether banks actually need the FLP funding. Asked whether they do, Shortt says ASB views it as an attractive proposition due to the three-year term of the funding.
"We could go and borrow money today at OCR, so the rate in and of itself isn't the most attractive. It's the combination of the rate and the term. We still think it's helpful," says Shortt.
*This article was first published in our email for paying subscribers early on Thursday morning. See here for more details and how to subscribe.
38 Comments
Is it just me or has the world gone bananas? Here we have a bank sitting on record interim profits, lending money out for an overcooked housing market offered more billions (printed) at almost free interest rate? What is the point to this than making bankers incredibly wealthy and pushing the house ponzi higher? How does this benefit me on the street? Can I have access to $$$ at .25%!
I guess that's one way of looking at it. The really interesting unknown to me RN, is what happens to the price of those assets when fiat fails? And what happens to the debt leverage on property? There's no way the banks are just going to roll over and take the deflation hit on that front. Cue the OBR, and a bunch of other daylight robbery tactics. There will be blood.
Offering banks up to $28 billion of three-year funding priced at the 0.25% Official Cash Rate, the FLP was launched by the Reserve Bank in December. Banks are able to borrow up to 6% of their total outstanding loans to businesses and households, made up of an initial allocation of 4% and an additional incentive-based allocation of 2% based on new lending. Based on ASB's gross lending of $95.5 billion at December 31, it could potentially borrow close to $6 billion through the FLP
CPI = 1.4%, FLP terms - for Fed/Federal Reserve read RBNZ below.
Question: What sort of projects do the Fed encourage with negative real (after-inflation) interest rates, that can’t even jump the hurdle of a zero real interest rate?
Answer: Only projects with negative real rates of return – primarily those that destroy capital and harm economic productivity. If these marginal projects aren’t worth doing unless the real interest rate is negative, then by definition, they are incapable of producing the same amount of real goods and services that is required to initiate them.
The monetary dogma of the Federal Reserve seems to view the U.S. economy as one big demand curve that always benefits from low nominal interest rates, and negative real interest rates. It is exactly the dogma that produces repeated economic cycles driven first by yield-seeking speculative bubbles, and then by financial crises that count on the bailout of private losses with public funds.
Before these bankruptcies and defaults emerge, understand this: bankruptcies are mainly packaged restructurings, and bank failures are mainly purchase-and-assumption transactions. What amplified the Depression was not bankruptcy and bank failure itself, but disorganized and piecemeal bankruptcy and bank failure. The public shouldn’t support bailouts. We should instead support quick restructurings that preserve corporate assets, jobs, and business activity, but also appropriately wipe out the equity and debt of companies that have been managed irresponsibly. That’s how risk-taking works. Why use public money to absorb losses that private investors willingly agreed to take the moment they bought corporate securities? Link
I agree the public shouldn't be on the hook for bailouts, but govt facilitating restructures is also a slippery slope. It's all a big brother knows better situation, and it's increasingly apparent big brother has no clue at all. Government is on the extreme inefficient side of the pendulum, so they are intrinsically unable to do anything small and efficient let alone restructure large complex companies. They'd do much better to airdrop $28b of helicopter money to every business in NZ with less than 50 staff, more than 3 years in business and <10m ARR. Sure there'd be wastage, but not as much as by lending it to the Aussie banks to gouge more profit out of our economy. The productivity multiplier they'd unlock from giving it to the backbone of our economy would likely be hugely beneficial to the country.
Orr has his priorities and affordable housing is not on the list https://mailchi.mp/rbnz.govt.nz/how-were-responding-to-covid-12449230?e…
I am beginning to wonder, what if...
...a bunch of smart interest readers/commenters who keep shaking their heads harder and harder, get together, establish a vehicle (trust?) that has one sole purpose, gather funding from similarly aggrieved people who clearly understand how and why the few people in charge wilfully ignore:
1) how money is created through issuance of debt by private banks
2) how much inflation we had already since price of housing has been taken out of inflation calculation basket
3) how much those actions aggrieve honest, smart and hard working people (from every walk of life!)
...and find a really good lawyer prepared to take action by starting a simple civil proceeding to pursue the government and individual people in charge at once to try and prove that they do know better than they admit, and if they don't admit that, they be declared incompetent, or even better, a fraud by a court. How hard can it be???
If I, as an average joe blogg, can grasp the concept of money creation by private banks, and how inflation really has robbed us all of real wealth, how hard can it really be to prove that a lot of really incompetent (at best) people are in charge of our economic and monetary system? Ok, some days I am day dreaming, and I just wonder...
If the objective and mandate was clear and democratic, I'd be interested in pooling some resources to achieve an outcome.
Probably needs an interim step like an interest.co.nz slack channel to chat in real time though and gauge the parameters. As a measure of interest, if this comment gets 40 or more upvotes I'll happily set one up, post a link with an open invite and admin it.
Actually, I think the responses so far have been better than I anticipated. Because as noted already, this is a fast moving world now, and unless you get a lot of eyeballs on your comment, I guess you won't be getting 40 upvotes.
So, in a word, I am interested to join a channel of any kind of communication that is secure and works. I am not a youngster, more like a boomer but perhaps with a conscience.
I think far too many people and families are so stretched in every respect that ot is becoming fast very obvious how much impact his is having on every day lives for the majority already. And being largely a result of the utterly corrupt interest bearing debt-is-money ponzi system that requires ever increasing debt to sustain itself, that is holding governments around the world at ransom. It has to stop one way or another eventually, because that is a mathematical certainty that history has proven already. Perhaps a long time ago revolutions were called for, but I think we have evolved a bit by now...?
If someone can setup a channel of communication, I am keen to at least have a go at discussing what may be involved.
I'm down on Discord since they banned the r/wallStreetBets chat group. Also, from an age demographic point of view Slack seems like its probably a bit less of a stretch for some of the older members. But ultimately any platform choice is contentious. Might be worth posting in Mondays morning summary and seeing what the response is like though.
Well, maybe I try that too, because there are too many families that are being misled by government after government, from any kind of political persuasion! I used to support Positive Money movement at the beginning in NZ. However, I now think we need to be a bit more clever and "persuasive" than that.
Too hard, you know the old saying ? if you cannot beat them, join them. Way to late to sort this mess out. What we are now left with is a social dividing line so your either on one side or the other. Its an entrenched position on a global scale and it cannot be fixed because those with the power do not want it fixed.
The term of the lending means the bank will have to come up, after 3 years, with the appropriate capital for those loans. I presume that would be easy with retained profits? It does sound like there could be some sweet 3 year fixed term packages available for new house builds.
Anyone asked ASB for lending quotes lately? I'm waiting for them to call me back and it's coming up 2 days now. I have a decent amount of lending with them so I'm interested to see just how deep they're willing to dig to keep me. I'd have to pay back the sign-on "gift" if I went elsewhere but really that's an insignificant amount compared to the interest I'm paying.
Gosh they're nice aren't they? Such an asset to the community:
1) businesses that are trying to lower emissions, 2) construction of new energy efficient homes, - that's the supply side of the housing equation, and 3) supporting infrastructure, particularly in regional areas,"
The government is basically saying "Oi, you, banks, we have decided to lend you money at a basically free interest rate, which you can then lend to other people at a higher interest rate and pocket the difference, is this something you would want to do?"
Bank's response in private "Holy crap! We're going to make a fortune!"
Bank's response in public "Well, yes, we will do a little bit of that and put it to wise use."
High time NZ had a Development Bank targeted at Infrastructure Growth lending instead of House lending.
These cheap funds from RBNZ/Governments should be directed to that, which will boost employmenet, revenue in the longer term. Many countries use that route to develop their economies.
The Banks can compete for funding from savers and try to be profitable without Government aid. Let the people benefit directly instead of the so called benevolence of commercial banks. which is a myth. They don't really pass on anything. Also it is time to think of forcing the Aussie owners to list their NZ units in the local share market, to give them a taste of the public support or otherwise.
My bet? as per NZ definition of F.I.RE economy: the F/Banking & RE had received a significant boost by 20% in 2020 (aka stimulus to keep them afloat).. What left is just that the 'I'. So expect, in the name of coastal erosion, climate emergency, carbon neutral, C19 effect - 'the stimulus' further to be distributed into 'Insurance' industries, focusing the ones that dealing with 'housing' - as this will give 'further assurances'... for overseas investors 2022 onwards.. to transfer more funds into/sustaining trajectory up of the basic NZ economy. Nice :-)
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.