ASB said late on Tuesday it would launch a NZ$1 billion Job Creation fund aimed at lending up to NZ$10 million each to small to medium businesses with an interest rate of 5%. ASB also said it would offer special 2 year Job Creation term deposits offering 5%, meaning ASB stood to lose around NZ$30 million in lost margins (of around 300 basis points) if the fund was fully lent. (Updated to include interview with ASB executive, details on lost profits.) The fund was aimed at businesses borrowing new money for projects that would create jobs and has been launched ahead of Prime Minister John Key's job summit on Friday. The loans are also designed to help businesses avoid cutting jobs, ASB said. The fund would not be used to refinance existing loans, ASB added. "If a business is prepared to invest in its future, and create or protect employment, then ASB is saying it is prepared to back them with an attractive lending rate," ASB's new CEO Charles Pink said in a statement. The fund was not dependent on ASB raising a matching amount through the term deposits, said ASB's Head of Relationship Banking and Financial Services James Mitchell.
"There are businesses with good plans and good ideas that need the impetus, given what we've seen with business and consumer confidence," Mitchell told interest.co.nz in an interview. ASB's market share of business banking stands at around 8-9%, well below its market share for mortgages at around 22%. ASB's business loans of about NZ$20 billion make up about third of its NZ$59 billion loan book. The idea for a Job Creation fund had surfaced and been developed as Prime Minister John Key proposed the Jobs Summit and had spoken to bank CEOs about how banks could help soften the recession's blow to employment. Mitchell said ASB wanted to make it clear with its 5% interest rate on both the loans and term deposits that it would only be breaking even with the initiative. This also did not include any accounting for possible bad loans, he said. "We are making that transparent and telling people that we're not clipping the ticket," he said. ANZ National has announced it has NZ$4 billion to lend to small to medium enterprises. Westpac and BNZ have yet to announce any type of business lending or job creation initiative.
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