Updated: Aug 5, 2022
As part of its response to the Covid crisis, the Reserve Bank of Australia ("RBA") implemented the Term Funding Facility directed at making funds available to banks to on-lend primarily to SME businesses.
Since Mar20 when it was implemented, more than $188billion has been made available to Banks to specifically on-lend to businesses, with SME's in particular.
Contrary to the popular press and daily announcements on for example, the housing boom, bank lending has remained extremely weak in the intervening period. For example, as at May21 (measured over 3 years)
Lending to Non-Financial Corporations was at Negative 1.23%
Lending to Financial Corporations was at Negative 7.81%
Lending to Households was up by 4.75%
In total, lending was up by 3.48% whereas Deposits at banks was up by 6.7%. Indicating a clear surplus of Deposits at banks and a marked reduction in lending activities.
This is another reasons why many Banks have been actively discouraging accepting new Deposits from their customers, the Institutional and Household sectors, and underscore the persistent low interest rate environment that will probably endure for a while yet.
We have in particular seen a definite lack of appetite for Cash Funds and hence our emphasis to all corporates to ensure a multi-bank strategy.
Extracted from RBA Announcement
"...Box: The Term Funding Facility
The Reserve Bank announced the Term Funding Facility (TFF) in March 2020 along with several other monetary policy measures designed to help lower funding costs in the Australian banking system.
The TFF made a large amount of funding available to banks at a very low interest rate for three years. Funding from the TFF was much cheaper for banks than other funding sources available at the time it was announced, and that remains true today. (See announcement of Term Funding Facility and the Governor's speech Responding to the Economic and Financial Impact of COVID-19).
The TFF is designed to lower banks' funding costs and in turn to reduce lending rates for borrowers. The TFF also creates an incentive for banks to lend to businesses (particularly small and medium-sized businesses). This is because banks can borrow extra funding under the TFF if they increase their lending to businesses: for every dollar of extra lending to small- or medium-sized businesses, banks can access five dollars of extra funding under the TFF (for large businesses, the amount is one dollar of extra funding)."