The industry landscape
The Australian banking and finance industry is made up of companies of various size and structure that offer Australian consumers and businesses choice and flexibility when it comes to funding their purchases or operations. The various companies can be classified into the following: Tier 1 Banks, Tier 2 Banks and non-bank lenders.
Tier 1 Banks
Top 4 banks by market capitalisation in the Australian market are:
These four banks are classified as our Tier 1 banks.
Tier 2 Banks
22 Banks make up the current membership of the Australian Banking Association. These other banks are classified as Tier 2 banks. These include regional and international banks.
According to the Australian Prudential Regulation Authority (APRA) there are currently over 80 Authorised Deposit-Taking Institutions (ADIs) that are legislated by APRA via the federal Banking Act 1959. These ADIs include the Tier 1 banks and Tier 2 banks but in addition, include Credit Unions and Building Societies.
There are over 350 additional registered financial corporations, which are defined by APRA as “any corporation which engages in the provision of finance in the course of carrying on business in Australia”. They are registered under the Financial Sector (Collection of Data) Act 2001.
Many of these are classified as non-bank lenders in that they engage in finance for retail and/or commercial markets, but do not have a banking license and are not authorised to conduct banking business such as holding deposits.
Government Stimulus in response to COVID-19
The government announced various stimulus measure in response to the COVID crisis, which are designed to keep the Australian economy functioning during this period.
Making funds available to ADIs
The Reserve Bank of Australia has outlined how it will assist the Australian economy via a term funding facility for the banking system, with particular support for credit to small and medium-sized businesses.
The Reserve Bank is providing a three-year funding facility to ADIs at a fixed rate of 0.25%. This is very competitive when compared to the open market and will go some way to assist small to medium businesses to access capital during this time https://www.rba.gov.au/media-releases/2020/mr-20-08.html
Unfortunately, this does not extend beyond ADIs, limiting its efficiency in assisting Australian SME’s in securing funding to maintain their operations during this time.
The Reserve bank made reference to a scheme for non-bank lenders via the Australian Office of Financial Management (AOFM) in the above linked announcement, but there has been no further detail in relation to what this may entail.
The Australian Banking Association, working with the government, are offering assistance to customers by way of deferred payments via its bank members. These members are all classified as ADIs and as such, have access to various support mechanisms introduced by the government to assist them in delivering these measures and maintaining business continuity for their operations.
How does this impact non-bank lenders?
Some non-bank lenders are in a difficult position. In many cases, they are small to medium businesses that are also feeling the pinch of the COVID crisis. Of course, they wish to support Australian businesses and the Australian economy as much as possible too. As such, they are looking at ways they can assist in relation to payment plans or deferrals, but every non-bank lender is different. We encourage any Australian business impacted by COVID to speak to their lender about what options are available.
If you are a 3E Advantage customer, we have established a dedicated COVID hub on our website where you can find a link to our assistance form if needed. Please submit this form as soon as possible and we will work with you and our funders to provide whatever level of support is possible to help you through this time.
Funding new business
During these restricted times, the availability of credit has tightened and in turn, the cost of credit has increased for most lenders. This contrasts with the cash rate set by the Reserve Bank having reduced over the past few months to a record 0.25%. This unfortunately does not directly align with the money market, which is accessed by non-bank lenders to secure funds for commercial lending such as equipment finance.
Fortunately, 3E Advantage works with a number of funders classified as banks, ADI’s and non-bank lenders. We’re confident this will ensure that we can continue to offer competitive funding for our partners and clients throughout this period, whilst maintaining a flexible credit policy based on the multiple funders and their individual funding appetites.
If you would like to know more, contact one of our team.