All non-citizen, non-resident travellers will be banned from entering Australia, as the government attempts to get a handle on the coronavirus outbreak.
“We believe it is essential to take a
further step to ensure we are now no longer allowing anyone, unless they
are a citizen or resident or direct family member,” Scott Morrison said
in an address on Thursday afternoon.
The government’s reasoning is that a
significant majority of cases are not contracting the virus through
community transmission, but by contact with someone who has recently
travelled from overseas.
“The reason for this decision is about 80
per cent of the cases we have in Australia are either the result of
someone who has contracted the virus overseas or someone who has had a
direct contact with someone who has returned from overseas,” he said.
Earlier this week, the government
announced all Australians currently overseas should return home
immediately, using commercial flights
The Australian Prudential Regulation Authority (APRA) today announced temporary changes to its expectations regarding bank capital ratios, to ensure banks are well positioned to continue to provide credit to the economy in the current challenging environment.
Over the past decade, the Australian banking system has built up substantial capital buffers. The highest quality form of capital, Common Equity Tier 1 (CET1) capital, reached $235 billion at the end of 2019. As a result, banks are typically maintaining capital levels well above minimum regulatory requirements.
In 2017, APRA set benchmark capital targets for banks to enable them to be regarded internationally as unquestionably strong (which was a recommendation of the 2014 Financial System Inquiry). These benchmarks are well above current minimum regulatory requirements. For the four major banks, for example, this benchmark equated to having a CET1 ratio of at least 10.5 per cent of risk-weighted assets. A lower benchmark applies for smaller banks. In comparison, the actual CET1 ratio of the banking system by the end of 2019 had reached 11.3 per cent.
APRA is advising all banks today that, given the prevailing circumstances, it envisages they may need to utilise some of their current large buffers to facilitate ongoing lending to the economy. This is especially the case for banks wishing to take advantage of new facilities announced today by the Reserve Bank of Australia to promote the continued flow of credit. Provided banks are able to demonstrate they can continue to meet their various minimum capital requirements, APRA would not be concerned if they were not meeting the additional benchmarks announced in 2016 during the period of disruption caused by COVID-19.
APRA Chair Wayne Byres said: “APRA has been pursuing a program to build up the financial strength of the system for many years, when banks had the capacity to do so. As a result, the Australian banking system is well-capitalised by both historical and international standards.
“APRA’s objective in building up this capital strength has been to ensure it is available to be drawn upon if needed in times such as this. Today’s announcement reflects the underlying strength of the system: even if the banking system utilises some of its current large buffers, it will still be operating comfortably above minimum regulatory requirements,” Mr Byres said.
RBA said: The coronavirus is first and foremost a public health issue, but it is also having a very major impact on the economy and the financial system. As the virus has spread, countries have restricted the movement of people across borders and have implemented social distancing measures, including restricting movements within countries and within cities. The result has been major disruptions to economic activity across the world. This is likely to remain the case for some time yet as efforts continue to contain the virus.
Financial market volatility has been very high. Equity prices have experienced large declines.
Government bond yields have declined to historic lows. However, the functioning of major government bond
markets has been impaired, which has disrupted other markets given their important role as a financial
benchmark. Funding markets are open to only the highest quality borrowers.
The primary response to the virus is to manage the health of the population, but other arms of policy,
including monetary and fiscal policy, play an important role in reducing the economic and financial
disruption resulting from the virus.
At some point, the virus will be contained and the Australian economy will recover. In the interim, a
priority for the Reserve Bank is to support jobs, incomes and businesses, so that when the health crisis
recedes, the country is well placed to recover strongly.
At a meeting yesterday, the Reserve Bank Board agreed to the following comprehensive package to support
the Australian economy through this challenging period:
A reduction in the cash rate target to 0.25 per cent.
The Board will not increase the cash rate target until progress is being made towards full employment
and it is confident that inflation will be sustainably within the 2–3 per cent target
band.
A target for the yield on 3-year Australian Government bonds of around 0.25 per cent.
This will be achieved through purchases of Government bonds in the secondary market. Purchases of
Government bonds and semi-government securities across the yield curve will be conducted to help
achieve this target as well as to address market dislocations. These purchases will commence tomorrow.
The Bank will work closely with the Australian Office of Financial Management (AOFM) and state
government borrowing authorities to ensure the efficacy of its actions. Further details about the
implementation of this are provided in the accompanying notice.
A term funding facility for the banking system, with particular support for credit to small and
medium-sized businesses.
The Reserve Bank will provide a three-year funding facility to authorised deposit-taking institutions
(ADIs) at a fixed rate of 0.25 per cent. ADIs will be able to obtain initial funding of up to
3 per cent of their existing outstanding credit. They will have access to additional funding
if they increase lending to business, especially to small and medium-sized businesses. This facility is
for at least $90 billion. Further details are available in the accompanying notice.
The Australian Government has also developed a complementary program of support for the non-bank
financial sector, small lenders and the securitisation market, which will be implemented by the
AOFM.
Exchange settlement balances at the Reserve Bank will be remunerated at 10 basis points, rather
than zero as would have been the case under the previous arrangements.
This will mitigate the cost to the banking system associated with the large increase in banks’
settlement balances at the Reserve Bank that will occur following these policy actions.
The Reserve Bank will also continue to provide liquidity to Australian financial markets by
conducting one-month and three-month repo operations in its daily market operations until further
notice. In addition, the Bank will conduct longer-term repo operations of six-month maturity or longer
at least weekly, as long as market conditions warrant.
The various elements of this package reinforce one another and will help to lower funding costs
across the economy and support the provision of credit, especially to small and medium-sized
businesses.
Australia’s financial system is resilient and well placed to deal with the effects of the
coronavirus. The banking system is well capitalised and is in a strong liquidity position. Substantial
financial buffers are available to be drawn down if required to support the economy. The Reserve Bank is
working closely with the other financial regulators and the Australian Government to help ensure that
Australia’s financial markets continue to operate effectively and that credit is available to
households and businesses.
Today’s policy package from the Reserve Bank complements the welcome fiscal response from
governments in Australia. Together, these measures will support jobs, incomes and businesses through
this difficult period and they will also assist the Australian economy in the recovery.
The Reserve Bank and the banking system have plenty of cash on
hand to meet demand under any circumstances,” says Assistant Governor Christian
Hawkesby. Mr Hawkesby made the statement today after public interest and
discussion about cash availability and use.
“We work closely with New
Zealand’s banks, the companies that transport cash, and those that supply
cash-handling equipment. They are all prepared for operating during all
circumstances, including any unusual challenges that COVID-19 may pose.” he
says.
“As an example, the Reserve
Bank has at least two years’ worth of replacement cash available to feed into
the system if required. We can keep cash flowing to and from branches and ATMs
in the event of staff shortages or other difficulties anywhere in the cash
system.”
“The banks and electronic
payments systems are prepared, resilient, and will keep operating. When people
are shopping, there will be cash and other payments systems available to
support that,” he says.
The Reserve Bank is also
reminding shoppers and retailers to practice good hand hygiene.
“Cash is just one of a
number of frequently touched surfaces we encounter. The same is true for any
other payment device whether it’s a card, phone or watch. This reinforces the
need for good hand hygiene regardless of the way you pay or accept payment.”
“Retailers should use
common-sense when it comes to cash. Businesses are not obliged to accept cash,
but declining it may end up disadvantaging people who rely on its use. These
people are more likely to be young, elderly, poor, disabled or financially
excluded. Have respect and care for each other,” says Mr Hawkesby.
Australia’s trend unemployment rate remained steady at 5.1 per cent in February 2020, from a revised January 2020 figure, according to the latest information released by the Australian Bureau of Statistics (ABS) today.
ABS Chief Economist Bruce Hockman said: “The trend unemployment rate remained steady at 5.1 per cent for a third consecutive month.”
There was no notable impact on February 2020 Labour Force statistics resulting from the recent bushfires or COVID-19. The February reference period was in the first half of the month and pre-dates the notable increases in confirmed cases in Australia of COVID-19.
Employment and hours
In February 2020, trend monthly employment increased by around 21,000 people. Full-time employment increased by around 13,000 and part-time employment increased by around 8,000 people.
Over the past year, trend employment increased by around 241,000 people (1.9 per cent), below the average annual growth over the past 20 years (2.0 per cent).
Full-time employment growth (1.5 per cent) was below the average annual growth over the past 20 years (1.6 per cent) and part-time employment growth (2.7 per cent) was also below the average annual growth over the past 20 years (3.0 per cent).
The trend monthly hours worked decreased by less than 0.1 per cent in February 2020 and increased by 0.8 per cent over the past year. This was lower than the 20 year average annual growth of 1.6 per cent.
“We have seen a decrease in the trend hours worked in recent months, even though employment has continued to grow. This largely reflects a fall in the total hours worked by men”, added Mr Hockman.
Underemployment and underutilisation
The trend monthly underemployment rate remained steady at 8.6 per cent in February 2020, and increased by 0.3 percentage points over the past year.
The trend monthly underutilisation rate also remained steady at 13.7 per cent in February 2020, an increase of 0.4 percentage points over the past year.
States and territories trend unemployment rate
The monthly trend unemployment rate increased in Victoria and decreased in Queensland, South Australia and Tasmania in February 2020. The unemployment rate remained steady in all other states and territories.
Over the year, unemployment rates fell in Queensland, South Australia, Western Australia, Tasmania and the Australian Capital Territory. Unemployment rates increased in New South Wales, Victoria, and the Northern Territory. Seasonally adjusted data
The seasonally adjusted unemployment rate decreased by 0.2 percentage points to 5.1 per cent in February 2020, while the underemployment rate remained steady at 8.6 per cent. The seasonally adjusted participation rate decreased by 0.1 percentage points to 66.0 per cent, and the number of people employed increased by around 27,000.
In original terms, the incoming rotation group in February 2020 had a higher employment to population ratio than the group it replaced (62.7% in February 2020, compared to 61.8% in January 2020), however it was lower than the sample as a whole (62.8%). The incoming rotation group had a higher full-time employment to population ratio than the group it replaced (43.6% in February 2020, compared to 43.4% in January 2020), and was higher than the sample as a whole (43.2%).
The incoming rotation group had a higher unemployment rate than the group it replaced (5.9% in February 2020, compared to 5.3% in January 2020), and was higher than the sample as a whole (5.5%). The incoming rotation group had a higher participation rate than the group it replaced (66.6% in February 2020, compared to 65.2% in January 2020), and was higher than the sample as a whole (66.5%).
Despite the property bulls (who seem to be a bit quiet just now) there are a series of logical reasons why prices will indeed fall from current levels.
First net migration into Australia will stop period. We have been seeing around 300,000 each year, which was one factor supporting demand in some areas.
Second, new property transactions will stall. No one will want to attend an open house, yet alone an auction in the current conditions. Sales transactions have risen more recently, but that just got turned off. How soon will it be before we see zero auctions reported on a Saturday?
Third, property investors, will continue to flee – they already saw rental returns dropping, now no capital growth. Demand from new investors was weak, it will die. They may have to subsidise renters who cannot pay rent due to job loss or income decline.
Fourth, existing mortgage holders will face cash flow issues as income stalls. We already have more than 1 million households in cash flow stress, another 200,000 or so are set to join them, in short order. Around one quarter of households have less than one months free cash available if incomes stall.
Fifth, banks will (are) cut back on mortgage lending. With margins already low, experience from Europe suggests it is unprofitable to lend. They will also lift risk underwriting standards. Meaning people if they want to borrow will get a lower available loan. Loan books will likely contain more defaults and higher risks – meaning more capital. Some may choose to shrink their balance sheets as liquidity stalls. Recently first time buyers were getting $420,000 mortgages no problems, with income ratios of 6, 7, 8 times or more. Debt servicing ratios are still high – and servicing is now an issue.
Income multiples often assumes double incomes. If one income stopped that would be a big problem.
Sixth, forced sales will eventually occur though nor immediately. I expect banks to support households in financial stress by loan and interest payment postponements, for a time. But eventually forced sales, at lower than current market values will follow. In addition, given the death rates among older people, more supply could well come on stream as estates are liquidated.
Seventh, States will take a hit from falling stamp duty as transactions slow. They will not be able to reverse this.
Eighth, Government will try various stimulation moves to try to prop up the market – but persuading people to buy now will be like selling seawater on the beach. They may well provide cash support direct to households for mortgage and rent payments – they probably should.
Ninth – the property wealth effect, which was a mirage, is dead. Finally. Until the next bubble starts, which it will, unless policy changes. I will have more to say about that ahead.
Finally, its worth thinking about this. On average, prices are 40% over their fundamental value. So they have a long way to fall.
And debt to GDP ratios are, and will go further off the charts.
From midnight, Friday 20 March, all non-essential travellers departing for Tasmania will be required to quarantine for 14 days, as announced today by Peter Gutwein, Premier. He said:
This is a tough, but necessary decision to flatten the curve, putting Tasmanians’ health and wellbeing first.
The
quarantine period will not apply to essential travellers – such as
health care workers, emergency workers, defence personnel, air and ship
crew, specialists, and essential freight personnel (truck drivers/spirit
freight), and there will be stringent guidelines to manage this.
Travel
restrictions do not apply to Tasmanian residents on our islands, such
as King and Flinders, flying into mainland Tasmania. However they will
apply to anyone travelling inbound to the island from mainland Australia
including residents returning home to the island. Mainland Australians
flying into our islands then onto mainland Tasmania will need to self-
quarantine when they arrive.
All passengers will be screened on arrival and must demonstrate they meet the essential traveller criteria.
If
they are deemed non-essential, they will be directed to quarantine
themselves at their stated place of address. Tasmania Police and
Biosecurity Tasmania will ensure compliance with the quarantine
measures, helping people to access support and follow up to ensure the
process is adhered to.
Breaching the quarantine process may incur a penalty of up to $16,800.
The message is clear, and the penalties are severe for anyone who does not comply with the mandatory quarantine.
Freight
will continue to come in and out of our state, and with TT-Line having
capacity to carry extra freight, Tasmanians can be assured we will have
the essential supplies we need.
Those requiring interstate medical treatment will also be able to utilise the Royal Flying Doctor’s Service.
There
is nothing more important than Tasmanians’ safety, and while the
economic impact will be significant, we have a chance now to slow the
spread of COVID-19 in our state.
This will provide Tasmanians with more certainty, help us to recover more quickly and make our state safer.
Under
a State of Emergency, we will activate the State Control Centre, which
will be headed by the State Controller (Commissioner of Police, Darren
Hine) in close liaison with the Director of Public Health, to coordinate
whole-of-government responses to COVID-19.
As
an island we are well placed to implement these tough restrictions and
slowing the spread of coronavirus will ensure we are better placed to
protect all Tasmanians.
General Motors Co.’s Mary Barra offered to manufacture hospital ventilators in auto factories shuttered by the coronavirus outbreak, an effort that would echo Detroit’s contribution to Allied powers during World War II. Via Bloomberg.
GM’s
chief executive officer floated the idea during a conversation with top
White House economic adviser Larry Kudlow, he told reporters Wednesday.
On Fox News earlier, he described an unidentified auto executive’s
offer to call back workers to idled plants to make the medical devices
needed to treat critically ill virus patients, and said it was made “on a
voluntary basis for civic and patriotic reasons.”
Barra, 58, suggested ways the
company could help during the crisis, a person familiar with the matter
said. GM could use some of its excess factory space to build ventilators
and has people looking into how that would be done, said the person,
who asked not to be identified describing a private conversation.
After U.S. President Franklin D.
Roosevelt called for arming and supporting Britain, France and other
nations in 1940, Detroit’s auto industry quickly transitioned their car
assembly lines over to make military jeeps, tanks and bombers. Within a
year and a half after the 1941 attack on Pearl Harbor, 350,000 workers
moved to the Motor City to join in the war effort, according to the Detroit Historical Society.
U.K. Prime Minister Boris Johnson earlier this week called on manufacturers to build ventilators. Carmakers Jaguar Land Rover Plc and Toyota Motor Corp. are among the companies that have offered to help.
More stimulus from the ECB, including the purchase of non-financial commercial paper. Following Japan, UK and USA. But just pause, to ask how will yet more liquidity helps – sure it might move bond rates, but support for real households and businesses should now be the main focus. Repeating the past mistakes and expecting different outcomes is.. well, a little mad. “The ECB will not tolerate any risks to the smooth transmission of its monetary policy in all jurisdictions of the euro area”.
The Governing Council decided the following:
(1)
To launch a new temporary asset purchase programme of private and
public sector securities to counter the serious risks to the monetary
policy transmission mechanism and the outlook for the euro area posed by
the outbreak and escalating diffusion of the coronavirus, COVID-19.
This
new Pandemic Emergency Purchase Programme (PEPP) will have an overall
envelope of €750 billion. Purchases will be conducted until the end of
2020 and will include all the asset categories eligible under the
existing asset purchase programme (APP).
For
the purchases of public sector securities, the benchmark allocation
across jurisdictions will continue to be the capital key of the national
central banks. At the same time, purchases under the new PEPP will be
conducted in a flexible manner. This allows for fluctuations in the
distribution of purchase flows over time, across asset classes and among
jurisdictions.
A waiver of the
eligibility requirements for securities issued by the Greek government
will be granted for purchases under PEPP.
The
Governing Council will terminate net asset purchases under PEPP once it
judges that the coronavirus Covid-19 crisis phase is over, but in any
case not before the end of the year.
(2)
To expand the range of eligible assets under the corporate sector
purchase programme (CSPP) to non-financial commercial paper, making all
commercial papers of sufficient credit quality eligible for purchase
under CSPP.
(3) To ease the collateral
standards by adjusting the main risk parameters of the collateral
framework. In particular, we will expand the scope of Additional Credit
Claims (ACC) to include claims related to the financing of the corporate
sector. This will ensure that counterparties can continue to make full
use of the Eurosystem’s refinancing operations.
The
Governing Council of the ECB is committed to playing its role in
supporting all citizens of the euro area through this extremely
challenging time. To that end, the ECB will ensure that all sectors of
the economy can benefit from supportive financing conditions that enable
them to absorb this shock. This applies equally to families, firms,
banks and governments.
The Governing
Council will do everything necessary within its mandate. The Governing
Council is fully prepared to increase the size of its asset purchase
programmes and adjust their composition, by as much as necessary and for
as long as needed. It will explore all options and all contingencies to
support the economy through this shock.
To
the extent that some self-imposed limits might hamper action that the
ECB is required to take in order to fulfil its mandate, the Governing
Council will consider revising them to the extent necessary to make its
action proportionate to the risks that we face. The ECB will not
tolerate any risks to the smooth transmission of its monetary policy in
all jurisdictions of the euro area.
Tens of thousands of small businesses are facing imminent collapse as revenues tank and they run out of cash. Urgent action is required to avert the disastrous consequences which will follow.
Sensible government intervention like travel bans should flatten the coronavirus curve but we need to also need to flatten the curve of small business insolvencies. Unless they get through the next few weeks, a massive number will not be around when the inevitable recovery takes place.
Banks have a crucial role to play but there is only so much they can do. We should not expect banks to simply offer an open cheque book because that would not be responsible lending. No lender can or should lend to a small business which has no or drastically reduced revenue. So what are the banks saying and more to the point what can they actually DO in this situation?
This is what ANZ’s Shayne Elliot has to say…..
And from NAB’s Ross
McEwan…..
There is a general acceptance that post Royal
Commission the banks are trying harder to be good corporate citizens and they
have all since signed up to the Code of Banking Practice that includes a
section on “When things go wrong” but all the codes and commitments in the
world are of little comfort to small business owners right now when time
is of the essence and if they don’t have:
– A manager they can talk to.
– Time to prepare a loan application and wait for an approval.
– Profits which can be offset by tax breaks.
– Term deposits to access.
– The demand to justify new investment (unless they are a toilet paper
manufacturer).
What they need is liquidity
and if there is one lesson from a career in banking it is that “Cash is king”. This
is as true today as it was after the stock market crash of 1987.
In 1987 we saw the collapse of asset values, predominantly equities, today we
are facing a dramatic economic downturn which is causing a cash flow crisis
that is a particular threat to thinly capitalised small businesses. The only
effective solution is to quickly get cash into their hands. And the only party
which can pay for this is the federal government which means the taxpayer. The
challenge is how to do this in a very short period of time.
In hindsight everything is always much clearer but the truth is we have missed
the boat when it comes to establishing a government agency that could perform
this function. This 2015 newsletter reveals how USA’s Small Business Administration has successfully
funded the small business sector for over 60 years.
Whilst for years the US and
the UK have wholeheartedly and very successfully committed taxpayers funds to
support small businesses, we have just begun dipping our toe in the water
with programs like the $2b Australian Business Securitisation Fund and the
Australian Business Growth Fund which is funded by the banks to the extent of
$540m.
We are now paying the price for this lack of foresight and commitment but that
aside, we must find a way to quickly get cash into the hands of small
businesses.
THE SOLUTION?
The government provides a guarantee to enable approved lenders to grant
registered businesses interest free loans up to $50,000 for a period of 12
months. Parameters that would need to be worked out include:
– Definition of an ”approved” lender eg non-banks, challenger banks,
fintechs etc.
– Amount (should it be more or less than $50,000?)
– Term (should it be more or less than 12 months?)
– Amount of government guarantee so the lender has some risk.
– Repayment terms and arrangements at maturity including potential for
rolling over.
– Size and reputation of borrower (employees/turnover, ATO compliant
etc.)
In broad terms, if there are 600,000 small business owners that qualified and
every one took out a $50,000 loan and every single one defaulted, it would cost
the taxpayer $30 billion.
Given that the coronavirus crisis will end up costing the country many times
more than this sum, the question for our Government is “what price do we put on the small
business sector?”
