Australian banks are making a late dash for billions in money from the Reserve Bank’s Term Funding Facility before the scheme closes at the end of the month.
RBA assistant governor Christopher Kent revealed on Wednesday that banks had drawn A$145 billion from the TFF since the scheme was launched in April last year.
Kent’s disclosure is significant because it indicates there was a flurry of funding activity over the last week as eligible banks finalised claims to their remaining allocations under the scheme.
The RBA on Friday reported that total drawdowns on the TFF stood at $126 billion as of Wednesday 2 June, which means that at least $19 billion was drawn from the scheme in the last week.
That is a weekly record for TFF activity - bettering the $11 billion that was tapped in the last week of August in 2020.
Kent said he expected banks to draw down most of the $64 billion worth of allowances ahead of the June 30 deadline.
“Drawdowns have accelerated in recent weeks,” he said.
“We expect that the bulk of available funding will be taken up because the cost of the facility remains well below the cost of similar funding available in the market.
“Most banks are expected to take up most or all of their remaining allowances.”
Banks and other ADIs are able to source term funding through the TFF for up to three years at an annual cost of only 10 basis points.
Westpac, which has an undrawn TFF allowance of $12 billion, has signalled its intention to exhaust its allocation this month.
While the most direct effect of the TFF has been to provide banks with a low-cost source of funding, Kent suggested non-bank lenders were also benefitting from the scheme.
“In addition to reducing banks' funding costs, the decline in bond issuance has benefited other institutions issuing debt,” he said.
“With fewer bank bonds on offer, investors have switched into other securities, including asset-backed securities and non-bank corporate bonds.
“This has contributed to a noticeable decline in spreads on these securities.”
Non-bank lenders including Athena, Firstmac and Brighten Home Loans have been critical of the RBA’s decision to exclude them from the TFF, insisting that the cheap funding will deliver a competitive advantage to the major banks over the next three years.
Non-banks also question whether the move last November to lower the cost of TFF funding from 25 basis points to 10 was necessary when the vaults of most banks were being flooded with historically cheap retail deposits.
Kent also acknowledged the contribution of the deposit boom to reducing the funding costs of banks.
“In short, the availability of the TFF, along with the large increase in low-cost deposits, have combined to reduce banks’ cost of funds to historic lows,” he said.
Peter Sheahan, director of money markets at Curve Securities, has argued since late last year that banks were likely to swamp the TFF for drawdowns this month as part of a sector wide strategy to push out refinancing timetables.
However, he said some banks – mostly foreign owned subsidiaries – might not be able to take advantage of their allowances.
“Some banks that have TFF allocations might not make drawdowns because they don’t have the necessary internal securitisation capabilities,” he said.
The Bank of China’s Australian subsidiary is one foreign-owned player that has already exhausted its TFF allowance after reactivating an internal securitisation program last year.
BoC’s local arm reported in its 2020 financial accounts that it had fully drawn its TFF entitlement of $77.6 million.