Via the AFR comes $2bn for small business from Amateur Treasurer Josh Frydenberg:
The creation of a taxpayer-backed securitisation fund to invest in small and medium enterprise (SME) credit will also potentially expand an asset class for institutional investors such as superannuation funds to invest in.
Treasurer Josh Frydenberg and Small Business Minister Michaelia Cash will announce the small business funding policy on Wednesday, promoting the soon-to-be-established Australian Business Securitisation Fund as a way to overcome banks typically only lending to the self-employed when they pledge their personal home as collateral.
The government fund will buy packages of secured and unsecured SME loans issued by smaller banks and non-bank lenders such as fintechs, boosting funding to these non-big bank lenders to lend to small businesses and potentially lowering SME borrowing costs.
The fund is already being compared with the Rudd Government’s GFC housing securitisation purchases. In time it may well be used for the same thing.
However, the comparison is bogus. RMBS purchases were easily regulated. The government could manage quality control by ensuring it only bought certain levels of mortgage risk, partly determined by which tranches of the bond it wanted to buy.
Exactly what kind of loans are we talking about this time around? Small business is highly risky stuff. How can the underlying loans possibly be scrutinised by the government? The banks are not going to bundle and pass off their best and most profitable customers are they? They’re going to package up the junk and dump it on the taxpayer.
It may help economic growth very marginally through the creation of some “last chance Larry” loans with very high charge off rates. But what this is really about is creating a new profit centre for participating banks to gouge. And where’s the quid pro quo for the tax payer? Why do we get to buy the bank’s worst business loans at inflated prices without so much as a squib of payback? I mean, cripes, talk about moral hazard.
That said, there’s not much point in getting upset at this point. The violations of the public purse ahead are going to make this one look like absolute child’s play in due course.
Welcome to the first little salvo in the great Aussie bank bailout.
