Finance Minister Grant Robertson put $6.5 billion aside for the BFGS. By the scheme’s conclusion, the Crown was backing 4,305 loans worth $2.9b.
Having interviewed BFGS participants and stakeholders, Berl concluded: “The general consensus from lenders was that the BFGS achieved the objective of facilitating the provision of credit to cushion the impact of Covid-19 on otherwise viable SMEs [small to medium businesses] facing temporary financial distress.
“The majority view from participants was that the BFGS ensured lending to marginally viable firms and reduced the risk of banks not lending to these firms.”
However, Berl went on to say: “Many interviewees expressed a view that the majority of lending would have likely occurred anyway to support their customers, and many of the loans made did not require a guarantee, but it gave lenders additional confidence.”
Berl, in its 19-page report, didn’t say how much the scheme had cost taxpayers.
The Treasury told the Herald the Crown has paid out just under $500,000 to cover the cost of defaulted loans.
However, given $2.3b of the $2.9b of loans written under the scheme was still outstanding, the Treasury expects further loans will be defaulted on.
Reserve Bank data shows that of the $125b stock of banks’ business lending as at November, only 0.4 per cent was non-performing - that is, repayments were more than 90 days late or the loan was impaired.
This is a very low portion by historical standards.
Coming back to the Berl report, it dug into the details of how the BFGS was designed.
“For some borrowers, predominantly SMEs, obtaining a BFGS-guaranteed loan required them to meet more rigidly applied credit policies for loans that were not initially intended to meet their needs. This made other products outside BFGS more appropriate and appealing for some borrowers,” Berl said.
It said stakeholders supported the scheme’s eligibility progressively being broadened, including to eventually include non-bank lenders.
With only 3 per cent of BFGS loans written by non-banks, Berl said the feedback it received suggested non-bank lenders should’ve been included from the onset.
Berl went on to say a lack of clarity and complexity around the scheme reduced its uptake.
Indeed, Robertson announced the creation of the BFGS in March 2020 before the terms and conditions had been finalised.
The idea was largely to provide confidence during a time of immense uncertainty, which initially saw equity markets collapse and bond markets seize up.
The BFGS was part of a suite of measures the Government and Reserve Bank took to support the economy via the banking system.
In mid-2020, the Government launched its Small Business Cashflow Loan Scheme, through which it agreed to write loans to eligible businesses itself. The Inland Revenue-administered programme is open until the end of 2023.
The Reserve Bank, between May 2020 and March 2021, removed all loan-to-value ratio (LVR) rules that restrict banks’ mortgage lending to borrowers with small deposits.
And the Reserve Bank, between December 2020 and December 2022, created money ($19b) and lent it to banks at a relatively low cost (the official cash rate) to help them lower their mortgage and term deposit rates in a bid to stimulate the economy.
In the three years to November, the stock of banks’ housing loans shot up by 24 per cent to $338b. Meanwhile, the value of their business loans rose by only 8 per cent to $125b.
