The Government has announced significant changes to a scheme to boost loans to businesses, amid warnings that demands made by Treasury meant the programme was not being used.
On Friday, Finance Minister Grant Robertson said the Government would no longer require banks to obtain a general security agreement under loans issued under the Business Finance Guarantee Scheme.
It appears the changes were made without consulting the banks which are offering the loans.
• Grant Robertson, from fiscal prudence to $1 billion a week
• Grant Robertson promises more support for business, but loath to become a lender
• Grant Robertson says 'helicopter' cash for Kiwis an option to help NZ economy recover
• Covid 19 coronavirus: Government to provide $100,000 interest-free loans to businesses
The changes are separate to a new scheme also announced on Friday under which Inland Revenue will offer loans to small businesses of up to $100,000 which will initially be interest free.
Announced in late March, the $6.25 billion scheme sees the Government guarantee up to 80 per cent of eligible loans issued by participating banks to businesses with between $250,000 and $80 million in revenue.
The scheme was designed to help provide working capital to viable businesses hit by Covid-19.
But the scheme had been coming under fire, with businesses claiming the conditions of the loans made them unattractive, even as the banks were saying they continued to lend billions of dollars to households and businesses.
In April, Reserve Bank governor Adrian Orr told MPs that banks needed to be "courageous" when deciding whether to extend credit to businesses, as they were facing little of the risk.
"Banks are there to risk share and capital allocate. Their risk sharing is only a small proportion of the total risk being shared," Orr said. He told MPs on the epidemic response select committee to summon bank chief executives before the committee.
Robertson's change appears to concede it was demands of the Government which may have limited the appeal of the scheme.
Early on Friday former finance minister Steven Joyce said Treasury had ordered banks not to ease lending criteria when deciding whether to issue the loans and was demanding businesses put up security - which is often the business owner's home.
"From what I'm hearing it's the Treasury that put pressure on the banks not to give too generous a loan," Joyce told Newstalk ZB.
"The Treasury's term sheet, as I understand it, requires the banks not to change their lending policies," Joyce added.
"It's not the banks saying they won't take on too much, it's actually the Treasury standing behind the banks saying 'don't you dare let them take on too much', which sort of defeats the purpose."
Treasury has not responded to a request for comment on the scheme.
Less than an hour before Robertson announced the need for a security agreement was being dropped, the New Zealand Bankers' Association provided a summary of the conditions required by the Treasury under the scheme.
This included requiring businesses to use all existing loan facilities before taking up the loan and requiring banks to obtaining a general security agreement on loans of more than $50,000 under the scheme.
"A bank's decision to provide a scheme loan must be made in accordance with its standard policies, practices and processes," the NZBA summary said.
NZBA chief executive Roger Beaumont issued a statement saying the scheme was a risk sharing one and that if a borrower defaulted, the banks were required to take steps to recover the money.
"If a customer is unable to repay the loan, the bank needs to recover as much as it can before the loss-sharing arrangement with the government takes effect," Beaumont said.
The NZBA has been releasing figures on lending activity of its members both to households and business.
The latest figures, released on Friday, said NZBA members had completed $6.1b of new lending to banks since the Covid-19 restrictions were put in place, restructured $4.5b of loans and reduced or deferred interest on more than $10b of existing loans.
Figures have not been provided for loans under the business finance guarantee scheme, but the numbers are expected to have been low, prior to the changes made on Friday.