Focus Funding for Lending - Forsyth Barr
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SPECIAL REPORT | Friday 4 December 2020
focus
Funding
for Lending
In response to the economic shock of COVID-19 and part of Reserve
Bank of New Zealand’s (RBNZ) ‘least regrets’ strategy, a new ‘tool’ is
being rolled out next week, which will see the major banks able to
access funding at extremely low rates of interest. The impact of the
Funding for Lending Programme (FLP) is likely to see term deposit rates
fall even further, meaning savers either face receiving a negative real
return on their savings or look for alternatives.
SPECIAL REPORT | Friday 4 December 2020
…The RBNZ has already slashed
the OCR to a record low with
further cuts possible in 2021…
Simply put… for potential borrowers. Encouraging individuals,
A bank is an intermediary between savers and households and businesses to borrow is how the
borrowers. A bank receives money from savers, RBNZ intends to help the economic recovery.
paying them one interest rate, and lends that There are two questions, however:
money out to borrowers at a higher interest
rate. The difference is the banks margin and how Will lower interest rates incentivise individuals,
a bank makes a profit (fees and other revenue households and businesses to borrow more?
sources aside).
Is there any demand for lending outside of
What the RBNZ is trying to do with the FLP is to residential property?
provide a funding source at the lowest possible
interest rate (in this case the Official Cash Rate of Funding
0.25%). The RBNZ has already slashed the OCR A bank funds its operations from shareholder
to a record low with further cuts possible in 2021. funds, deposits (both call and term deposits) and
The hope is that the FLP (alongside the ultra-low debt markets (both locally and offshore). All of
OCR) will encourage banks to lower interest rates these funding avenues (except for deposits sitting
R E TA I L I N T E R E S T R AT E S : W E I G H T E D AV E R A G E L E N D I N G A N D D E P O S I T S
6.0%
5.0%
4.0%
3.0%
Since the OCR was cut by -75bp,
TD rates have fallen by -150bp
2.0%
1.0%
0.0%
Jul 2011
Jul 2016
Jan 2014
Jan 2019
Jun 2014
Apr 2015
Jun 2019
Apr 2020
Sep 2010
Oct 2012
Sep 2015
Oct 2017
Sep 2020
Feb 2011
Feb 2016
Aug 2013
Aug 2018
Dec 2011
Mar 2013
Dec 2016
Mar 2018
May 2012
Nov 2014
May 2017
Nov 2019
Source: RBNZ, Forsyth Barr research
Page 2
…businesses are likely to
remain cautious. Households,
however, are another story…
in cheque accounts etc) cost a bank some form clients at very low interest rates for competitive
of interest. Borrowing at the current 0.25% OCR pressures to push all lending interest rates lower.
would be extremely attractive. Even the mere If this occurs then the programme would be
suggestion of the FLP has seen term deposit rates deemed a success.
fall significantly in recent months (see graph). Over
The unanswered question around additional
the last year NZ$13.6bn has exited term deposits
demand for debt remains unclear. With ongoing
from the big four1 banks as interest rates have
uncertainty around COVID-19 and its impact
declined. The RBNZ is however concerned that
on economies, businesses are likely to remain
lending rates have not fallen in comparison.
cautious. Households, however, are another
Borrowers story with record house sales in recent months
The RBNZ is clear that the measure of success of causing major headlines and headaches for the
the FLP is not the scale of how much is borrowed Government. There is no requirement for banks
(~NZ$28bn could be) but what the impact on who use the FLP to lend to any one sector, which
lending interest rates is. It would only take has led to concerns that the residential house
one bank to use the FLP and offer loans to its price inflation may continue to rise.
1. ANZ, ASB, BNZ, WBC
PROBABILITY OF AN OCR CUT
0.30%
Today 1mth ago
0.20%
0.10%
0.00%
-0.10%
-0.20%
-0.30%
Feb 2021 Mar 2021 Apr 2021 May 2021 Jun 2021 Jul 2021 Aug 2021 Sep 2021 Oct 2021
Source: Bloomberg, Forsyth Barr research
Page 3
SPECIAL REPORT | Friday 4 December 2020
…a significant portion of
the current NZ$143bn
term deposits may be
trying to find a new home…
With interest rates already low, the prospect of term deposit rates
potentially heading towards 0%, a significant portion of the current2
NZ$143bn term deposits may be trying to find a new home. Will the
destination be the equity market? Residential property? Or something
else? It may prove that asset prices continue to rise for some time yet.
T E R M D E P O S I T R AT E S
Matt Sturmer
1yr 18mths 2yr 3yr 4yr 5yr
Senior Analyst,
ANZ 0.85% 0.90% 0.90% 0.90% 0.90% 0.90% Fixed Income
ASB 0.75% 0.80% 0.80% 0.90% 1.00% 1.00%
BNZ 0.85% 0.85% 0.85% 0.90% 0.90% 0.90%
WBC 0.80% 0.80% 0.85% 0.85% 0.90% 0.90%
Source: Interest.co.nz (as at 2 December)
2. As at 30 September 2020
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is available to provide you with advice and assistance at any time. forsythbarr.co.nz
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