The Reserve Bank is introducing a Term Lending Facility (TLF), a new longer-term funding scheme for the banking system,
in support of the Government’s Business Finance Guarantee Scheme to help promote lending to businesses.
The TLF is similar to the recently announced, Term Auction Facility (TAF), and both provide liquidity to the banking system. The TLF aims to complement the
Government’s Business Finance Guarantee Scheme, announced last week, by ensuring access to funding for banks at low interest rates for up to 3 years duration, which is longer than the
Bank’s other liquidity facilities.
“We are working in-step with the Government and the country’s banks to provide the economic support that is crucially
needed during this uncertain time,” Reserve Bank Governor Adrian Orr says.
“New Zealand’s financial system remains sound, with strong capital and liquidity buffers. We are confident that the
financial system is well placed to respond to the impacts of coronavirus.”
“The facility is designed to support bank lending under the Business Finance Guarantee Scheme,” Assistant Governor and
General Manager of Economics, Financial Markets and Banking Christian Hawkesby says.
“We are currently engaging with banks on the operational details of the scheme, with the intention of launching our
first TLF operation in May.”
As previously announced, the Reserve Bank’s Monetary Policy Committee has worked to mitigate the severe economic effects
of COVID-19 by reducing the Official Cash Rate and implementing a Large Scale Asset Purchase programme. In addition, the
Reserve Bank has deferred the start of increased capital requirements and is delaying planned regulatory initiatives, to
allow banks to focus on lending to their clients during the disruption of COVID-19.
“To further support the stability of the financial system during this period of economic uncertainty, we have agreed
with the banks that during this period there will be no payment of dividends on ordinary shares, and that they should
not redeem non-CET1 capital instruments,” Deputy Governor and General Manager for Financial Stability Geoff Bascand
says.
The restrictions take effect from today under revised Conditions of Registration issued to all locally-incorporated
banks. They will remain in place until further notice, with the aim of relaxing them when the economic outlook has
sufficiently recovered.
“This initiative further supports the stability of the financial system by maintaining higher levels of capital during
the period of falling economic activity resulting from the COVID-19 pandemic,” Mr Bascand says.
More information:Mahi Tahi: How the Reserve Bank, Government and industry are working together to ensure cash-flow and confidenceResponding to COVID-19Mortgage holiday and business finance support schemes to cushion COVID impactsCorporate facility another step to support market functioningFinancial system sound, and Reserve Bank providing additional supportEditors’ notes:The Term Lending Facility (TLF) will offer loans for a term of three years to ensure a stable source of funding that
aligns with the Government’s Business Finance Guarantee Scheme lending profile.The TLF will be priced at a margin over the OCR, with similar collateral eligibility and haircuts to our existing OMO
and TAF operations.The Reserve Bank’s Term Lending Facility programme will link access to funds to banks’ lending under the Business
Finance Guarantee Scheme..