At least some of the major banks will be charging very low interest rates, one as little as 0.8 per cent, in lending under the $6.25 billion government finance guarantee scheme, and considerably lower rates than they charge on residential mortgages.
ANZ Bank, the nation's largest, told BusinessDesk it doesn'texpect to make any money on the BFGS, "even with the government guaranteeing 80 per cent of any losses."
The bank will charge a flat 2.5 per cent to all customers borrowing under the scheme and ANZ will waive application, monthly account and line fees, it said.
ASB Bank said it will charge as little as 0.8 per cent and up to 3 per cent on BFGS loans, "dependent on individual customer circumstances."
Kiwibank will also be charging a flat rate on BFGS loans of 2.55 per cent and will be waiving all fees.
BFGS loans are for up to three-years and nine banks have signed up to provide them. Both ANZ and Kiwibank, and later Westpac, said even before the details were finalised that they would honour the spirit of the scheme.
In announcing it, Finance Minister Grant Robertson said the scheme was part of the government's measures to help protect businesses, jobs and the economy through the unprecedented coronavirus crisis.
The loans are meant to help businesses with cashflow and operating expenses so that they and their banks have "space to work together through this crisis."
The lowest three-year fixed home mortgages available in the market are 3.19 per cent and 3.20 per cent offered by two Chinese-owned banks while the lowest offered by any of the big four plus Kiwibank is the latter's 3.65 per cent.
ANZ's website shows it charges up to 10.6 per cent, plus an unspecified margin, on business overdrafts – plus a 15 percent penalty rate if a business exceeds its credit limit – although its corporate indicator rate is 3.15 percent, plus an unspecified margin. ASB's corporate indicator rate is 3.33 per cent.
Kiwibank's general manager of business banking, Nigel Gaudin, said the reason his bank can offer such a low rate is because the Reserve Bank is providing a dedicated funding line to back the BFGS loans. The government's guarantee is another.
The Reserve Bank confirmed that the risk-weighting on the BFGS loans will be much lower than is usually the case on loans to businesses.
"For banks which use the standardised approach, this will see the risk-weight on the eligible lending decrease from 100 per cent to 20 per cent," the RBNZ told BusinessDesk.
In other words, the banks will need just 20 per cent of the capital they normally require to back BFGS loans.
By comparison, the standardised risk-weight on residential mortgages with loan-to-valuation ratios of 80 per cent or less is 35 per cent.
Only the four major banks are allowed to use their own models for calculating capital and ANZ's risk-weightings on corporate loans range from 30 per cent for a small proportion of such lending to 173 per cent for loans in default.
A number of banks had already put special measures in place to support businesses through the crisis well before the BFGS was announced.
Kiwibank, for example, cut the interest rate on business MasterCard accounts from 16.9 per cent to 9.95 per cent from April 15 through to July 15.
Data released by the New Zealand Bankers' Association yesterday showed that since the lockdown began on March 25, the nation's trading banks had provided 13,559 businesses with new loans totalling $5.5 billion, moved to either interest only or reduced principal repayments and interest on $17.4 billion of existing loans to 13,549 businesses, and that a further 3,053 businesses had deferred all repayments on $1.6 billion of loans.
None of that lending was under the BFGS. When it was announced on April 2 and the details were still being finalised, the NZBA said the banks would follow their normal credit assessment processes which usually took about 10 working days.
"We're trying to embrace the essence of why the scheme has been put in place," Kiwibank's Gaudin told BusinessDesk.
He noted the rules of the scheme mean any temporary or emergency lending since March 16 can be repaid with BFGS money.
But he cautioned businesses against viewing the BFGS as free money. "It's not a handout or a subsidy. It's a loan that has to be repaid."
