The Reserve Bank said today it would introduce a term lending facility (TLF) in May – a longer-term funding scheme for the banking system to promote lending to businesses, in support of the business finance guarantee scheme which the Government announced on 24 March.
Reserve Bank governor Adrian Orr said the TLF would be similar to the term auction facility (TAF) announced on 15 March, and both would provide liquidity to the banking system.
The TLF is intended to complement the Government’s business finance guarantee scheme by ensuring access to funding for banks at low interest rates for up to 3 years, longer than the bank’s other liquidity facilities.
Mr Orr said: “We are working in-step with the Government & the country’s banks to provide the economic support that is crucially needed during this uncertain time.
“New Zealand’s financial system remains sound, with strong capital & liquidity buffers. We are confident that the financial system is well placed to respond to the impacts of coronavirus.”
The bank’s assistant governor & general manager of economics, financial markets & banking, Christian Hawkesby, said the Reserve Bank was engaging with banks on the operational details of the scheme, with the intention of launching its first TLF operation in May.
Under this facility, the Reserve Bank will offer loans for a term of 3 years to ensure a stable source of funding that aligns with the Government’s business finance guarantee scheme lending profile.
The bank will price the facility at a margin over the official cashrate (OCR), with similar collateral eligibility & haircuts to its existing OMO and term auction facility (TAF) operations.
The term lending facility programme will link access to funds to banks’ lending under the business finance guarantee scheme.
Links to the Reserve Bank:
30 March 2020: Mahi Tahi: Working together to ensure cashflow and confidence
30 March 2020: Corporate facility another step to support market functioning
24 March 2020: Mortgage holiday and business finance support schemes to cushion COVID impacts
22 March 2020: New Zealand banks strong, cashed-up and ready to support customers
16 March 2020: Financial system sound, and Reserve Bank providing additional support
From the Government:
1 April 2020: Business finance guarantee – applications open
1 April 2020: Work starts on ways to fast-track consents to boost recovery from Covid-19 downturn
1 April 2020: Government seeks infrastructure projects
1 April 2020: Advance payments to support contractors
Attribution: Bank release.