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EMERGENCY RELIEF: Banks throw $100bn lifeline at small businesses

Has your bank passed on the Reserve Bank of Australia's emergency interest rate cut on? Source: Getty

UPDATE MARCH 21: Government announces its second stimulus package, prompting banks to respond with further measures.

Commonwealth Bank revealed it would make up to $10 billion of additional unsecured credit available to support small and medium businesses at rates of 500 basis points lower.

“Today’s announcement will mean that small businesses can access an unsecured business loan through the Commonwealth Bank for three years of up to $250,000 at historically low rates, given the Government’s support and the Reserve Bank’s term funding scheme announced last week.”

UPDATE MARCH 20: Australian Banking Association CEO Anna Bligh revealed on Friday new measures for small businesses, including a six-month deferral for loan repayments.

“This Assistance Package will apply to more than $100 billion of existing small business loans and depending on customer take up, could put as much as $8 billion back into the pockets of small businesses as they battle through these difficult times,” Bligh stated.

“This is a multi billion dollar lifeline for small businesses when they need it most, to help keep the doors open and keep people in jobs.”

Bligh revealed banks were putting in place a fast-track approval process to ensure customers receive support as soon as possible.

“Small businesses can rest assured that if they need help, they will get it. Banks are already reaching out to their customers to offer assistance and packages will start rolling out in full on Monday,” Bligh stated.

What are the big four banks doing?

ANZ’s measures

Of all the major banks, ANZ is the only one to announce a drop to home loan rates: all variable rates will be cut by 0.15 per cent p.a. from 27 March.

ANZ is also slashing fixed lending rates as well as payment deferrals of six months. The bank has a list of measures for small and medium businesses and home loan customers, including:

  • Business loan rates have been dropped by 0.25 per cent p.a. from 27 March;

  • Home and business loan repayments deferred by six months for impacted customers

  • Dropping the fixed rate of two- and three-year secured small business loans by 0.8 per cent p.a. to 2.59 per cent p.a.

  • Owner occupiers will see a two-year fixed rate of 2.9 per cent p.a. for those paying principal and interest.

Westpac’s measures

Westpac is not announcing changes to variable home-loan rates, but there will be measures for consumers and businesses:

  • Small businesses will see improved cashflow, with overdrafts reduced by 2 per cent for all customers, and variable interest rates on cash-based loans slashed by 1 per cent from 6 April;

  • A fixed home loan rate of 2.29 per cent p.a. for one, two and three-years for owner-occupied customers on principal and interest repayments with a Premier Advantage package from 27 March;

  • For savers, an increase of 0.7 per cent on 12-month term deposit to 1.7 per cent p.a.; Aussies 65 years or older will get 2 per cent p.a. for eight months;

  • A $10 billion home lending fund to help Australians into home ownership;

  • If you’ve lost your job or seen a loss of income, you can have your mortgage repayments deferred for three months, and another three after review.

Commonwealth Bank’s measures

The bank will not change their variable home-loan rates. Instead, they have announced emergency measures for businesses and those on fixed home loan rates:

  • Small businesses: There will be a 1 per cent interest rate reduction for all existing cash-linked small business loans;

  • Owner occupiers: Customers on one, two and three-year fixed home loans will receive a 70 bps interest rate reduction to 2.29 per cent p.a;

  • Savers: Those with 12-month term deposits will receive a 0.60 per cent increase to 1.70 per cent;

  • Minimum repayments: 730,000 customers will have repayments reduced to the minimum required under their loan contract, from 1 May. This is expected to result in $400 per month extra for customers and create up to $3.6 billion in additional cash support for the economy. 

NAB’s measures

The bank will not change their variable home loan rates. Instead, they have announced a support package for business and personal customers:

  • Small businesses will be able to defer loans for up to six months, and receive a 2 per cent cut on new loans and overdrafts.

  • Personal customers will be entitled to pause home loans for up to six months - this will result in an additional $11,006 over six months on the average home loan, or $1,836 per month.

  • Fixed home loan rates will be reduced to 2.39 per cent for 1 year, 2.29 per cent for two-and-three year, and 2.79 per cent for 5 year loans.

March 19: RBA cuts cash rate

The Reserve Bank of Australia has slashed rates out of cycle to a new record low of 0.25 per cent, after dropping rates to 0.50 per cent earlier this month. 

The unprecedented move comes as the coronavirus outbreak continues to shatter the Australian economy, and as Aussies wait for the government to announce its second stimulus package, after the first $17.6 billion package fell flat.

Will variable home loan rates change?

As it stands, no big four bank has announced a cut to their variable home loan rates, and it is looking increasingly unlikely any bank will pass on a cut.

Commonwealth Bank has announced a cut to their fixed rates, and is instead offering a lifeline to small businesses. The ABA also announced broad measures for small businesses.

If the big four banks were to pass on a 0.25 per cent interest rate cut, Aussies with variable home loans would be looking at an average variable interest rate of 3.65 per cent.

This would equate to a saving of $50,450 on the average $489,251 mortgage across 30 years.

My bank hasn’t passed on the interest rate cut. What can I do?

The RBA has been slashing rates, but the big four banks haven’t passed on the entire cut to consumers. 

So, if you’re a customer of the big banks, it might be time to consider switching banks to get a better rate.

Comparison site Mozo revealed the big four banks’ interest rates are 1.28 per cent higher than the best rate on the market.

On the average home loan, Aussies could save almost $100,000 over the life of the loan by switching to a better rate.

“This is not the time for blind loyalty to the big banks. A simple thing such as comparing your home loan and switching could save the typical big bank owner occupier borrower over $3,300 a year in interest charges and help reduce financial stress at this tough time,” Mozo director Kirsty Lamont said.

If you’d prefer to stay with your current bank, here’s how to talk your way to cheaper home loan too.

Additional reporting by Jessica Yun.

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