Lenders strong as Fed Govt guarantee ends

Posted on 1/04/2010  

Consumers have been reassured about the health of the financial system as the Federal Government removes the government guarantee on wholesale funding.


Financial comparison website RateCity, which monitors 13,000 financial products from 250 financial institutions, says there’s no need for concern about banking or borrowing with a smaller lender.


Damian Smith, RateCity’s CEO, says the government guarantee, introduced in October 2008 as an “emergency measure”, made it easier for Australian institutions to raise funds during the downturn and helped our banking sector emerge from the GFC stronger than other countries.


Smith says 80% of the $147 billion raised using the guarantee was through six banks: ANZ, Commonwealth Bank, NAB, Westpac, Macquarie Bank and Suncorp Bank.


“But, even without the guarantee, several smaller institutions including credit unions and building societies such as CUA and IMB have raised significant sums of money over the past six months,” Smith says. “These institutions are likely to play a key role in increasing competition in home lending and small business lending over the next 12 months.”


He says the ending of the guarantee will have no direct impact on consumers. “Effects on consumers will be indirect - if any at all. Australian banks now have very strong financial positions and their ability to keep lending for home loans in particular should be very strong.”


Smith says institutions are likely to continue their “war for deposits”, as they seek to raise more funds from depositors to continue improving their balance sheets.


“We continue to see high interest rates for online savings accounts and some term deposits. This includes 90-day term deposit rates at 5.7% from Bankwest, which is 1.7% above the Reserve Bank’s cash rate, and online savings accounts with rates of 5.85% from UBank and ING Direct.”



« Back