Why banks aren’t taking advantage of cheap money

Banks have so far been slow to take up the Reserve Bank’s cheap lending offer with the country’s largest bank, ANZ, yet to tap into the Funding for Lending programme.

The programme opened to banks on December 7 and allows them to borrow at the official cash rate (OCR) – currently at 0.25 per cent – for a period of three years.

But so far just $1.04 billion has been drawn down – $40 million on December 11 and $1b on December 21.

To put that in context banks did $9b in mortgage lending in November alone last year.

Kelvin Davidson, a senior economist at CoreLogic described it as a slow start.

“Certainly you would call it slow to get going.”

“I wouldn’t say that was something to be concerned about – just they haven’t needed it so far. That is not to say they won’t use it.”

Davidson said the banks could tap into the facility once other funding rolled off over the next three to six months and it sought the programme as a cheaper option.

“It could be as some of those existing facilities mature they might look to replace that more expensive offshore funding with FLP cash which is of course very cheap.”

But Cameron Bagrie, an independent economist at Bagrie Economics, said Funding For Lending was a financial crisis tool without a financial crisis.

“I do not understand why is it even there. It is not as if banks have problems sourcing funding, nor interest rates need to be even lower for a red hot property market.

“Banks have oodles of cheap funding already and deposits continue to grow strongly.Term deposit balances might be down but transaction and savings balances are up sharply and the funding costs on those are basically zero.”

The Reserve Bank won’t say which banks have drawn down on the facility which is designed to help push retail lending rates lower.

An RBNZ spokesman said it was unable to provide any further details for confidentiality reasons.

“The data is reported at an aggregate level to protect the integrity of the programme, and business of the participants.”

Queries by the Herald to major banks found most were reluctant to confirm whether they had used the scheme.

A spokeswoman for Kiwibank said: “We are pleased the RBNZ has introduced the facility. We won’t be commenting on individual drawdowns.”

But ANZ confirmed it had yet to use it.

“Currently, we have adequate funding from customer deposits and other sources, the details of which are commercially sensitive.

“We may use the FLP in future. In an environment where the RBNZ is looking to reduce interest rates, the availability of the FLP is a legitimate mechanism to contribute to reducing rates, whether or not banks choose to draw on it.”

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