“This scheme is a core part of a comprehensive package that will provide a critical boost to those parts of the economy, particularly in travel and tourism, which are still doing it tough as a result of COVID-19,” he said.
"The new structure means ANZ can take that risk. We can take the benefit of the guarantee, which helps us stretch our risk appetite.” – Shayne Elliott
The Australian Treasury announced on March 11 the scheme, first rolled out in 2020, would be expanded to $A40 billion and extended, taking loans up to $A5 million from $A1 million, and include the refinancing of existing loans.
The scheme is specifically targeted at SMEs currently receiving the JobKeeper employee subsidy. It will see government take on more of the risk, moving from a 50/50 backing with banks to an 80/20 split.
According to Elliott, the expanded scheme “will enable those businesses hardest hit to access the necessary capital to take advantage of a recovering economy. It’s targeted where required, inclusive where it needs to be and has the full support of ANZ”.
“The scheme was a 50/50 split of support from the government and banks but that was quite early in pandemic really so moving to 80 per cent government backing really does help, it helps target those particular sectors still suffering,” he said.
Elliott also stressed it was important some of the risk in the program was still carried by banks: “if it was 100 per cent [government backing] it takes out all the risk [for the banks] and I think the banks need to have skin in the game. That's fair. It's much more inclusive.”
He also supported the broadening of the ambit with larger companies now eligible, longer term lending possible and also refinancing rather than just support for new businesses.
The expanded scheme will see loan terms increase from five to 10 years and lenders will be allowed to offer borrowers a repayment holiday of up to 24 months. Loans can be secured or unsecured against residential property.
Interest rates on loans will be determined by lenders but capped at around 7.5 per cent with flexibility allowed if rates do rise.
Elliott described the new structure as very practical.
“The refinancing gives us a bit of bandwidth. I'll give you an example, completely hypothetical. We might have a case where the customer has already borrowed $3 million from us and they're in tourism in far north Queensland. We can go back and say, hey, how about we increase the loan to $5 million?
“The new structure means ANZ can take that risk. We can take the benefit of the guarantee, which helps us stretch our risk appetite. For the customer we can stretch the terms, etc. But a part of that will be refinancing.
“So I think as part of a package, I think that refinancing element is really, really good. And, you know, there's a lot of flexibility in the system. It’s a practical approach to where we are today.”
Elliott said the interest rate ANZ and other banks would charge on the loan would depend on standard measures such as risk and tenor but clearly have the Federal Government standing behind 80 per cent of the loan would considerably lower the risk.
“Government risk is 80 cents on the dollar so the rate should be a blended. It will depend on a range of factors but compared with a standard loan I would imagine the rate would be materially lower,” he said.
Although some commentators have expressed concern banks might use the government backing to charge higher than necessary interest rates Elliott said that would not be something ANZ would consider – not only was it not the government’s intention but nor was it in ANZ’s interest.
“There’s no point trying to profiteer when you’re trying to support your customers to get through this incredibly difficult period. And it is in our long term interests to support our customers. We want them to get through.”
Elliott noted the SME industry was still cautious and lending growth remained subdued. However, he added that sector had performed better through the crisis than initially feared and there were some early signs of greater borrowing appetite.
Andrew Cornell is Managing Editor of bluenotes