The Australian Prudential Regulation Authority (APRA) today confirmed its regulatory approach to the COVID-19 support packages being offered by banks and other lenders to their borrowers in the current environment.
Many banks have recently announced COVID-19 support packages that provide affected borrowers with an option to defer their repayments for a period of up to six months. These packages have mainly been offered to small business and home loan customers.
Where a borrower who has been meeting their repayment obligations until recently chooses to take up the offer not to make repayments as part of a COVID-19 support package, the bank need not treat the period of the repayment holiday as a period of arrears. Similarly, loans that have been granted a repayment deferral as part of a COVID-19 support package need not be regarded as restructured.
APRA will be writing to all authorised deposit-taking institutions (ADIs) to advise them of the specific reporting treatment for loans subject to these support arrangements. APRA will require ADIs to report to APRA, and publicly disclose, the nature and terms of any repayment deferrals and the volume of loans to which they are applied. ADIs must also still continue to provision for these loans under relevant accounting standards.
APRA also confirmed that the Coronavirus SME Guarantee Scheme announced by the Commonwealth Government yesterday is to be regarded as an eligible guarantee by the government for risk-weighting purposes.
In addition, we note that the Government’s package launched yesterday included a relation of bankruptcy and corporate government rules, including the protection of directors responsible for companies who, under normal rules would perhaps indicate their businesses would not be viable.
Moody’s says that on 22 March, Australia (Aaa stable) announced economic relief measures, totalling AUD66 billion ($38.2 billion, or around 3% of GDP) in support to households, businesses and guarantees to small and medium-sized enterprises (SMEs), in addition to a package announced previously and a set of measures aimed at supporting credit.
On 17 March, New Zealand (Aaa stable) announced a NZD12.1 billion ($7.3 billion), or 4% of GDP, stimulus package to provide immediate support to the economy and alleviate the disruption caused by the coronavirus outbreak.
Both governments have indicated that they will adopt further measures amid the rapidly deteriorating global economic outlook.
The measures highlight the strong institutional capacity of both Australia and New Zealand to develop emergency fiscal responses during an unprecedented global shock. The measures also demonstrate a high degree of fiscal flexibility that allows for larger near-term budgetary expenditure without threatening longer-term fiscal strength.
In addition to the previously announced AUD17.6 billion support to the economy, the Australian government plans to spend about AUD25 billion in support to businesses in this and the next fiscal year (the fiscal year ends in June), AUD21 billion in support to households and to offer AUD20 billion of guarantees to SMEs. Measures include a boost to SMEs’ cash flow, with upfront payments, temporary relief on creditors’ claims for financially distressed companies, a direct lump-sum payment to individuals and, specifically, to vulnerable households among other measures.
The New Zealand government will spend NZD6 billion by June 2020, as around NZD5.1 billion of the entire package is allocated as wage subsidies for affected businesses in all regions and sectors. The measure aims to stave off a significant deterioration in the labor market. The government has also announced various business tax changes to alleviate businesses’ cash flow pressures and NZD500 million in additional spending on public healthcare, much of which will go on measures that prevent transmission of the coronavirus in the country.
These stimulus packages come in addition to ongoing monetary policy stimulus in both economies. The Reserve Bank of Australia (RBA) has cut its policy rate by 50 basis points so far in March and offered an at least AUD90 billion (0.5% of GDP) special funding facility to commercial banks, which includes an incentive to increase lending to small and medium sized businesses.
The Reserve Bank of New Zealand (RBNZ) delivered an emergency policy rate cut of 75 basis points on 16 March, in addition to announcing a 12- month delay to the increase in bank capital requirements, which it estimates will allow banks additional lending capacity of around NZD47 billion (16% of GDP).
The RBA has also announced a quantitative easing program, aimed at ensuring the yield on three-year government bonds remains around 0.25%, while the RBNZ has left the door open for unconventional monetary policy including largescale asset purchases. {Subsequently Announced].
After accounting for these stimulus packages, Moody’s expects a moderate weakening in both governments’ fiscal positions, with Australia’s surplus turning to a deficit in fiscal 2020. New Zealand plans to fund its stimulus package with increased debt issuance and a drawdown in cash reserves, pushing net debt above the target range of 15%-25% of GDP.
Beyond these measures, weaker revenue growth because of slower economic activity and the triggering of automatic stabilizers will weaken fiscal balances. Moody’s does not view this near-term budgetary expansion by both sovereigns as significantly threatening their fiscal strength. Indeed, it highlights the flexibility and capacity that both governments possess to utilize fiscal policy to support their credit profiles amid an increasingly difficult global economic environment. Particularly for New Zealand, fiscal surpluses and debt levels below Aaa-rated peers provide ample fiscal flexibility
A $46 billion emergency supplemental funding proposal the White House budget office submitted to Congress last week to battle the coronavirus outbreak has ballooned to $242 billion in the Senate amid frenzied negotiations. Lawmakers remain deadlocked on several key provisions. Via The Hill.
A
summary of the supplemental spending legislation provided to
stakeholders by the Senate Appropriations Committee says it would
provide $75 billion for hospitals, $20 billion for veterans’ health
care, $11 billion for vaccines, therapies and diagnostics and $4.5
billion for the Centers for Disease Control and Prevention.
More
than 75 percent of the $242 package — approximately $186 billion — will
go to state and local governments, fulfilling a central Democratic
demand to bail out cash-strapped states such as New York.
The
supplemental would also provide $20 billion for public transportation
emergency relief, $10 billion for airports and $5 billion for the
Federal Emergency Management Agency disaster relief fund, according to
the summary document.
Other
items include $12 billion to the Pentagon, $10 billion in block grants
to states, $12 billion for K-12 education and $6 billion for higher
education.
The
pending Senate appropriations measure is significantly larger than the
$45.8 billion request the Office of Management and Budget submitted
earlier this week to “address ongoing preparedness and response
efforts.”
A
huge chunk of the money, $119.4 billion, would go to the Departments of
Labor, Health and Human Services, Education and related agencies.
The Departments of Transportation, Housing and Urban Development and related agencies would receive $48.5 billion.
The New Zealand Monetary Policy Committee (MPC) has decided to implement a Large Scale Asset Purchase programme (LSAP) of New Zealand government bonds.
The negative economic implications
of the coronavirus outbreak have continued to intensify. The Committee agreed
that further monetary stimulus is needed to meet its inflation and employment
objectives.
Globally, the number of
people infected with the virus has increased rapidly and measures to contain
the outbreak have become more restrictive. Global trade and travel, and
business and consumer spending have been curtailed significantly.
The severity of the impacts
on the New Zealand economy has increased. Weaker global activity is affecting
the economy through a range of channels, not just reduced trade. Domestic
measures to contain the outbreak of the virus are also reducing economic
activity. Employment and inflation are expected to fall relative to their
targets in the near term.
In addition, financial
conditions have tightened unnecessarily over the past week, reducing the impact
of the low OCR on achieving the MPC’s mandate. Heightened risk aversion has
caused a rise in interest rates on long-term New Zealand government bonds and
the cost of bank funding.
The Committee has decided to
implement a LSAP programme of New Zealand government bonds. The programme will
purchase up to $30 billion of New Zealand government bonds, across a range of
maturities, in the secondary market over the next 12 months. The programme aims
to provide further support to the economy, build confidence, and keep interest
rates on government bonds low.
The Committee will monitor
the effectiveness of the programme and make adjustments and additions if needed.
The low OCR, lower long-term interest rates, and the fiscal stimulus recently
announced together provide considerable support to the economy through this
challenging period.
Record of meeting:
Monetary Policy Committee (MPC)
20-22 March 2020
On Friday 20 March the Chair
of the MPC spoke with the external members of the MPC by phone to update them
on the Bank’s financial stability activities and the interaction with monetary
policy. These activities were public. The external MPC members were made aware
of what the other members of the Committee were involved in with regard to the
Bank’s ongoing support to financial market functioning and stability.
The Chair and the external
members also discussed the fact that any further monetary stimulus provided by
the Bank would likely be through the purchase of government bonds in a Large
Scale Asset Programme (LSAP). All MPC members were also made aware that
monetary policy recommendations were being sent to them for a decision soon,
and that there would likely be an ongoing series of Bank monetary and financial
stability actions as the economic impacts of COVID-19 unfolded.
MPC members received papers
on Friday evening containing staff advice about the ongoing deterioration in
the economic situation relating to COVID-19.
The initial view of staff
was that an MPC decision on their recommendations would be preferable by Sunday
22 March 2020. On Saturday 21 March, following advice from the Reserve Bank’s
financial markets team as to their operational and legal readiness to implement
a LSAP, the MPC Chair called for an MPC decision to be made by email. An
in-person meeting was seen as unnecessarily risky given current official
guidance about social distancing.
There was agreement amongst
members to proceed in this manner and by Sunday morning there was a consensus
MPC agreement to:
Provide further monetary policy stimulus through a Large Scale Asset Purchase (LSAP) programme of New Zealand government bonds in the secondary market.
The initial scale of the LSAP programme is up to $30 billion of government bonds, across a range of maturities, to be purchased over the next 12 months.
Communicate the decision on the morning of 23 March.
This decision was made in
response to staffs’ briefing material to the committee indicating the
increasing severity of the economic situation and deterioration in financial
market conditions.
It was noted that the
Government’s fiscal package announced on March 17 has delivered significant
spending stimulus in addition to the monetary stimulus announced on March 16.
However, the health and safety measures announced by governments over prior
days – related to the reduction in travel and large gatherings globally – would
add to inflation and employment falling below target in the near term.
Returning inflation and
employment to target over the medium term will require support from monetary
policy. How much stimulus will depend on how the COVID-19 pandemic progresses
and the actions to abate the virus.
The committee considered a
range of scenarios, and it was apparent that in light of the evolving situation
more stimulus was needed.
Committee members’ attention
was drawn to the tightening in financial conditions over the past week.
Interest rates on long-term New Zealand government bonds had risen
significantly, affecting the cost of wholesale funding for any banks accessing
the market at this time. Such increases mean that the reduction in the OCR
announced on March 16 was not effectively passing through into interest rates
faced by borrowers. The depreciation in the exchange rate had helped ease
conditions at the margin but not sufficiently.
The staff briefing material
also included updates on global economic developments and other countries’
economic policy responses to the pandemic.
Committee members were
advised that the recommendation of a $30 billion LSAP program reflected a
current assessment of the maximum effective stimulus achievable while
maintaining a well-functioning government bond market. Staff noted the importance
for liquidity to remain in the bond market and for multiple market makers.
Staff recommended that
purchases up to $30 billion should be spread over at least 12 months and across
a range of maturities, in order to leave enough liquidity for the New Zealand
government bond market to function effectively. And that the Bank’s
communications should emphasise that the LSAP programme would provide
confidence and support for the government bond market, and monetary stimulus
through keeping longer-term interest rates low.
Members noted that the exact
amount of stimulus needed is difficult to quantify, and that the range of
economic scenarios they had seen were consistent with a need to deliver
significant stimulus.
Briefing material also
included information about the implications of an LSAP program to the Reserve
Bank’s balance sheet, and about the governance arrangements in place between
the Reserve Bank and the Minister of Finance. It was noted that MPC agreement would
be sought if further stimulus was needed to be provided, either by increasing
the size of the LSAP programme, or through the use of other instruments.
The Committee reached a
consensus to:
Approve a programme of Large Scale Asset Purchases to a total volume of $30 billion of NZ Government bonds over 12 months
Delegate to staff the implementation decisions of the LSAP programme
Communicate the program in terms of the total volume to be purchased
According to the New Daily, Victoria to close schools and NSW is to shut restaurants, and pubs; and cross-border controls will be in place.
Australia is fragmenting as the coronavirus sees state borders closed and premiers embrace sweeping lockdowns.
In
what is confirmation Australians must prepare to face the country’s
most extreme virus safety measures to date, NSW Premier Gladys
Berejiklian has declared non-essential services will shut down within 48
hours.
Victoria also confirmed just
before 3pm Sunday (local time) that schools would shut on Tuesday and
there will be progressive closures of businesses such as pubs and
restaurants.
Schools in NSW will remain
open on Monday, but the premier is likely to make further announcements
on education in the days to come.
ACT
Chief Minister Andrew Barr announced that the territory would follow the
lead of NSW as it was “impossible” to have different arrangements from
the surrounding region.
Victorian
Premier Daniel Andrews made a similar announcement to the NSW premier,
confirming “non-essential” services will be forced to close.
“This is not something that we do lightly,” Mr Andrews said.
“But
it’s clear that if we don’t take this step, more Victorians will
contract coronavirus, our hospitals will be overwhelmed, and more
Victorians will die.”
Supermarkets,
petrol stations, pharmacies, convenience stores, and freight service –
including home delivery of food – will remain open across Victoria and
NSW.
Victorian Premier Daniel Andrews released this statement on Sunday afternoon.
Political
leaders are meeting on Sunday night to consider urgent powers that
would see citizens banned from travelling between suburbs and in between
so-called COVID-19 “red zones”.
“Tonight
I will be informing the National Cabinet that NSW will proceed to a
more comprehensive shutdown of non-essential services,” Ms Berejiklian
said in a statement.
“This will take place over the next 48 hours.”
NSW Health on Sunday confirmed 97 new COVID-19 cases, bringing the state’s tally to 533.
Authorities
have still not been able to work out the source of infection for 46 of
those cases, but they do know those people became infected within
Australia.
The NSW Premier confirmed the strict rules would be rolled out in the next 48 hours.
Victorian
cases jumped by 67 overnight and the government confirmed there had
been outbreaks in regional areas including Warrnambool and the Surf
Coast.
The call to shut down schools goes against the advice from the federal government.
Prime
Minister Scott Morrison persisted with the message for the past week
that the health advice was that it was best to keep children at school.
The call by Mr Andrews makes Victoria the first state to officially close classroom doors to stop the spread of coronavirus.
Children in other nations have already stopped going to school.
The Victorian government said it was bringing forward the school holidays.
It remains to be seen whether the ban on physical class attendance will extend into term two.
Meanwhile,
South Australia has confirmed it will effectively close its borders in a
bid to stop the spread of COVID-19 following an outbreak within a group
of tourists travelling around the Barossa Valley.
Premier
Steven Marshall announced on Sunday that anyone entering the state
would be subject to a mandatory 14-day isolation period.
The measures will take effect from 4pm on Tuesday.
“The
health of South Australians is unquestionably our No.1 priority and
that is why we are acting swiftly and decisively to protect them from
the impact of this disease,” he said.
“We do not make this decision lightly but we have no choice”.
South
Australia’s borders will be monitored 24 hours a day and anyone
entering the state will be forced to sign a declaration agreeing to
self-isolate.
State authorities moved to declare a “major emergency” on Sunday, triggering the shutdown.
But Police Commissioner Grant Stevens admitted authorities were limited in their ability to enforce the isolation orders.
SA Police have been checking on those who have already been ordered to self-isolate after disembarking international flights.
He
said authorities were “relying on people’s community and sense of
goodwill to do the right thing”, and that overwhelmingly people had been
complying with orders.
Similar restrictions have been put in place in Tasmania and the Northern Territory.
In the NT, there are major fears for indigenous communities.
The Prime Minister And Treasurer released their second stimulus package today which is designed to shield the country from the current emergency, and to keep businesses from collapsing for at least the next 6 months. But a warning, watch how the RBA measures have been rolled into the total support now valued at $189 billion. This is deceptive. They want to make it look like a big number. It is not, yet!
In summary, small businesses can receive cash payments up to $100,000 and some welfare recipients will receive another $750 in payments, as Newstart is repurposed temporarily.
It builds on the measures included in the first $17.6 billion economic stimulus package announced more than a week ago.
ScoMo said “We cannot prevent all the many hardships, many sacrifices that we will face in the months ahead.
He made the point that the health-related issues are leading to a range of broader economic issues, as never before. The total packages are now worth around 9.7% of GDP – or around $189 billion dollars, and Treasury modelling indicates benefits to the national accounts in the June and September quarters to offset the big falls elsewhere. No one knows where results will land. But within that, $90 billion reflects the RBA’s liquidity injections, so the true Government direct support is much lower than advertised.
The UK initiatives, we recently discussed were 15% of UK GDP, so we are still doing things on the cheap in my view. More direct support for households needs to come.
The new measures include:
Temporarily doubling the Jobseeker Payment, previously called Newstart
Allowing people to access $10,000 from their superannuation in 2019-20 and 2020-21
Guaranteeing unsecured small business loans up to $250,000
Reducing deeming rates by a further 0.25 per cent
A second $750 payment will be automatically paid to an estimated 5 million people on July 13 on welfare. The first $750 payment, announced in the first stimulus package, will be paid on March 31.
The
Government will temporarily double the Jobseeker Payment, previously
called Newstart, providing people with an additional $550 a fortnight.
The
payment will be available to sole traders and causal workers, provided
they meet income tests. The Government will waive asset tests and
waiting periods to access the Jobseeker Payment.
The Prime Minister said that “the nature of these payments and the purpose of these payments are changing.” to provide additional income support for vulnerable groups.
For small businesses and Not-for-profits with a turnover under $50 million can receive a tax-free cash payment of up to $100,000, with a minimum payment of $20,000 for eligible companies.
The Government says 690,000 businesses employing 7.8 million people and 30,0000 not-for-profits will be eligible for measures in the stimulus package. The payments will be delivered by the Tax Office as a credit on activity statements from late April.
In an agreement with the banks, the Commonwealth is also offering to guarantee unsecured loans of up to $250,000 for up to three years to businesses, interest free for 6 months.
In response the CBA said “The Commonwealth Bank will support as many of the Government supported loans as possible and in doing so make available up to $10 billion of additional unsecured credit to support small and medium businesses.” The ABA welcomed the move saying ” Banks stand ready to help their business customers get through this, whether it’s deferring their loan payments or providing more working capital. Today’s announcement of a second stimulus package, which includes an SME Guarantee scheme, will mean access to funds to see small businesses through this downturn”.
The Government will allow people to access up to $10,000 from their superannuation this financial year and in 2020-21.
People will not pay tax on they money they access and withdrawals will not affect Centrelink or veterans’ payments.
There will also be a temporary 50-per-cent reduction in superannuation minimum drawdown requirements for account-based pensions in 2019-20 and 2020-21.
On top of the deeming rate changes made at the time of the first package, the Government is reducing the deeming rates by a further 0.25 percentage points to reflect the latest rate reductions by the RBA. As of 1 May 2020, the lower deeming rate will be 0.25 per cent and the upper deeming rate will be 2.25 per cent. The change will benefit around 900,000 income support recipients, including Age Pensioners. This measure is estimated to cost $876 million over the forward estimates period.
The Government is moving quickly to implement this package. To that end, a package of Bills is being introduced into Parliament on 23 March 2020 for urgent consideration.
Subject to passage of the Bills through Parliament, the Government will then move to immediately make, and register, supporting instruments.
The National Cabinet will meet tonight to find a way to force Australians to adhere to social distancing, following the temporary closure of Bondi Beach after people failed to adhere to government spacing requirements.
There were clear signals of more draconian measures should people not keep their distance. The Government also said not to travel unless it was essential. Reality is slowly catching up with the community, but many are still looking the other way.
Mark you diary. This just might be last results for some time. I attended (socially distanced) three house auctions today. Not one buyer turned up for any of them and the auctioneer went away tail between legs. These were premium properties which a few days ago I think would have sold.
That said, Domain released their preliminary results for today. The numbers sold appear down a bit (despite the media hype I noted saying there was frenzied buying parallel to toilet paper!). There were more listed for sale than last week.
Sydney listed 776 auctions, reported on 495, with 388 sold, 107 withdrawn and 107 passed in (weird coincidence) This gives a Domain clearance of 64%. [Last week final was 67%]
Melbourne listed 1,184 auctions, reported on 827 with 537 sold, 46 withdrawn and 290 passed in to give a Domain clearance of 62%. [Last week’s final was 65.2%]
Canberra listed 56 auctions, reported 38 and sold 26, with 2 withdrawn and 12 passed in, giving a Domain clearance of 65%.
Brisbane listed 95 auctions, reported 37 and sold 18, with 9 withdrawn and 19 passed in giving a Domain clearance of 39%.
Adelaide listed 47 auctions, reported 28 with 19 sold, 1 withdrawn and 9 passed in to give a Domain clearance of 66%.
The UK has taken unprecedented actions to support households and businesses. It will be interesting to see what the Australian Government comes out with when they announce theirs. The UK is providing wages support, rental support, and more support for the small business sector.
Capital Economics said that it expected the unemployment rate to rise from just under 4% to about 6% due to the crisis. However, without this latest government intervention, that rate would have risen to the financial crisis level of 8%.
The UK Government has announced a new Coronavirus Job Retention Scheme. Any employer in the country – small or large, charitable or non-profit – will be eligible for the scheme. But it does not cover those on zero hours contracts, or are self employed.
Government grants will cover 80% of the salary of retained workers up to a total of £2,500 a month – that’s above the median income. Employers can top up salaries further if they choose to.
Employers will be able to contact HMRC for
a grant to cover most of the wages of people who are not working but
are furloughed and kept on payroll, rather than being laid off.
The Treasurer said “that means workers in any part of the UK can retain their job, even if their employer cannot afford to pay them, and be paid at least 80% of their salary”.
The Coronavirus Job Retention Scheme will
cover the cost of wages backdated to March 1st and will be open
initially for at least three months – and I will extend the scheme for
longer if necessary.
There is no limit on the amount of funding available for the scheme.
In addition he announced that the Coronavirus Business Interruption Loan Scheme will now be interest free for twelve months, not 6 months.
And a further cash flow support through the tax system for businesses was announced, buy deferring the next quarter of VAT payments.
That is a direct injection of £30bn of cash to employers, equivalent to 1.5% of GDP.
They will be launching in the coming days a major national advertising campaign to communicate the available support for businesses and people.
To strengthen the safety net, the Universal Credit standard allowance, for the next 12 months, will be lifted by £1,000 a year, as well as increasing the Working Tax Credit basic element by the same amount
Together these measures will benefit over 4 million of our most vulnerable households.
As a result, every self-employed person can now access, in full, Universal Credit at a rate equivalent to Statutory Sick Pay for employees.
Taken this amounts to nearly £7bn of extra support through the welfare system to strengthen the safety net and protect people’s incomes.
UK homeowners can get a three-month mortgage holiday if they need it.
They also announced nearly £1bn of support for renters, by increasing the generosity of housing benefit and Universal Credit, so that the Local Housing Allowance will cover at least 30% of market rents.
They called these actions “an unprecedented economic intervention to support the jobs and incomes of the British people”.
Further measures will be announced next week, to ensure that larger and medium sized companies can also access the credit they need.
He said “we want to look back on this time and remember how, in the face of a generation-defining moment, we undertook a collective national effort – and we stood together”.
