CEO Vittoria Shortt says ASB hasn't been pocketing any of the benefit from the billions of dollars of RBNZ funding for lending money it's accessing

CEO Vittoria Shortt says ASB will use the full $5.7 billion of public money available to it through the Reserve Bank's Funding for Lending Programme (FLP), and hasn't made money from the lending it's doing with the FLP funding.

ASB has been the biggest user of FLP funding to date, drawing down $3.8 billion of the $12.660 billion banks have utilised so far. 

The FLP was launched by the Reserve Bank in December 2020 to help banks provide additional monetary stimulus to the economy, and assist the central bank in meeting its consumer price inflation and employment monetary policy remits by reducing banks’ funding costs and lowering their borrowers' interest rates. At the time of its launch, the FLP was offering banks up to $28 billion of funding.

The three-year FLP funding is available to banks over a two-year period running until December 6 this year. The FLP allows eligible banks to borrow directly from the Reserve Bank at the Official Cash Rate (OCR) with the borrowing rate adjusting over the term of the transaction if the OCR changes. The OCR was 0.25% when the FLP launched and is 2.5% now.

Speaking to interest.co.nz after ASB posted its annual financial results on Wednesday, Shortt said ASB is lending out the FLP funding to increase the supply of housing, for regional infrastructure, and to assist with climate transition.

"At the time FLP was introduced the purpose of it was to try and stimulate investment and that was the whole reason for creating it. So we took that purpose and we decided that we would use it for the long-term benefit for all New Zealanders," Shortt said.

"FLP was never there to help banks. FLP was there to help investment for New Zealand."

"The really important part of the whole thing is that we passed on the full benefit to those customers. We haven't kept a dollar of it ourselves. All of it has gone to the people who are making those investments. And we think that is really fulfilling the purpose of FLP, the genuine intent of what FLP was there to do," said Shortt.

Asked whether she was saying ASB hasn't made a single dollar off lending out FLP money, Shortt replied: "Correct. We did not keep any of the benefit. None of it, zero. That was the whole point of it."

Whether other banks have also done this is a question that should be put to them, she added.

 Asked whether loans funded with FLP money could help ASB build relationships with customers and create a good perception of the bank, helping secure additional business and thus benefiting ASB, Shortt acknowledged this could be the case.

"I guess we all win if people are doing good things don't we? So I think it's a really positive thing to try and solve some of these longer term issues and we want to do that," she said.

ASB says FLP funding was used for its Back My Build loan offer, launched in May 2021 and ended in March this year. It offered borrowers building houses a floating interest rate of 1.79%. ASB says this loan has supported nearly 6,000 new home projects. The Back my Build interest rate is now 4.04% versus ASB's standard floating rate of 6.35%. ANZ's Blueprint to Build loan offer, for new builds, is 3.58%.

ASB says $1.7 billion of FLP lending was used for businesses committing to sustainability strategies or investing in sustainable assets and projects, including $240 million for rural sustainability lending. And it says it has also supported regional infrastructure initiatives, such as new hospital facilities, a new university campus and iwi social housing with FLP funding. The bank won't provide specific, individual details of these projects.

The Reserve Bank has come under criticism for keeping the FLP running for so long given it's now in an OCR tightening, or increasing cycle, and yet the FLP - a stimulatory tool - remains in place. Interest.co.nz asked Shortt if the FLP public money was actually needed by banks, or remains needed.

"To answer that question I would go back to do we think that we need to support customers with climate transition? Do we think that we need infrastructure in regions? And do we think we need to try and solve the supply of housing in New Zealand? And my answer to those three things is yes."

And ASB plans to tap into more FLP funding. It has access to $5.7 billion in total and expects to use it all.

"We're going to use the lot. I still figure we've got a climate problem. I still think we've got to support housing construction. These are still real issues today, they haven't gone away," said Shortt.

Bank participants can access FLP funding at the equivalent of up to 6% of their total outstanding loans. Banks' initial potential allocation was 4% of eligible loans as of 31 October 2020, able to be drawn down between 7 December 2020 and 6 June 2022. An additional allocation may be drawn down equal to 50 cents for every dollar of net growth in eligible loans from 1 November 2020 up to a maximum of 2% of eligible loans as at 31 October 2020.

FLP funding is structured as floating rate repurchase transactions. Eligible securities banks can pledge as collateral for FLP money include Residential Mortgage Backed Securities, New Zealand Government Securities, and Kauri debt issues.

A Reserve Bank spokesman told interest.co.nz last month the FLP is working as planned and will stay in place until its scheduled end in December. 

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