SYDNEY, Australia – Financial corporations and banks continue to step up their services to aid in better post-pandemic financial recovery in Australia.
The Reserve Bank of Australia said that further cuts on their card rates to respond to the struggling Australian consumers are forecasted. Meanwhile, according to the UBS head of real estate, investment banks will also step up their merger and acquisition transactions. These finance activities will play bigger roles in the post-pandemic financial recovery.
In the previous months, the COVID-19 pandemic has caused the Australian economy to be pushed to an unanticipated economic recession, which the country has not seen in the past 29 years. Countless people lost their jobs, and many industries and businesses closed permanently, all contributing to the plunging economy.
Throughout the country’s pandemic’s effect, the government has exhausted its resources to handle the crisis in partnership with big banks and corporations. Different programs and schemes were developed to give support, primarily for personal finances.
Some of the government aids provided to Australians include regular financial support through the improved and modified JobKeeper and JobSeeker schemes. Thousands of Australians in the working force struggling in their finances benefited from this relief. Another COVID-19 relief given was the early release of superannuation funds that released billions of finances to millions of citizens.
The country’s biggest banks also played a big role in providing relief to the economy and the citizens at the pandemic height. These banks have presented COVID-19 relief packages they have approved and distributed in parliament committee sessions earlier this month. These packages included cuts on interest rates and unnecessary fees, loan deferrals, fast approval of new loans, and many more. These actions were great contributors to the stability of household finances during the pandemic.
However, experts have warned that the road to economic and financial recovery in the post-pandemic world will still be a long and difficult path.
The RBA Deputy Governor Guy Debelle has praised the government efforts done in response to the COVI-19 pandemic. According to Debelle, without the relief measures, such as the JobKeeper and JobSeeker schemes, Australia households will be of more trouble as finances will cause more difficulties. Through the generous income supports given, Australian households have better standing on their finances than what recession-struck households normally have.
However, Debelle also recognized that the country’s road to economic and financial recovery will still be a “slow grind.”
Previously, RBA still had hesitations on cut rates, even with the national official cash rate falling at its lowest point at 0.25 per cent in March. But with the emphasis on the current status of the economy and its anticipated recovery status, RBA said that interest rate cuts are now a possibility. It was recognized that the unstable status of households’ and businesses’ income and demand would result in reluctant spending and investing.
According to Debelle, inflation and employment are not parallel with RBA’s foreseen and planned objectives for the coming period. Thus, continuous assessments and modifications to their policy options are also required.
Among the options being considered, one is to make interest rates lower, although negative rates are not at hand. Another option in the list is purchasing more bonds or even intervening with foreign exchange rates, highlighting that the country’s financial recovery can greatly benefit lower exchange rates.
On the other hand, on a keynote address that UBS Head of Real Estate Tim Church gave to The Australian Financial Review Summit on Tuesday, investment banks will play a bigger role in the post-pandemic financial recovery. He stated that the country’s biggest banks’ lack of liquidity would hinder them from executing finance deals. He emphasized in his speech that there is a confidence that investment banks will have stepped up services in the coming months, given that corporate activities will be less dependent on big banks.
This status was a product of the COVID-19 pandemic that took a toll on most banks’ liquidity in the past months. When the pandemic hit, many companies and corporations have drawn down all their available bank facilities. Church, who is also UBS’ top real estate banker, said that the pandemic caused a crazy drive on all industries globally to take hold of every cent they can get from their bank resources. Many companies, regardless of their industry and size, drew their lines entirely.
This global movement of series of drew-downs has left nothing from big banks but liquidity issues. Adding to this issue is the possibility of increased pressure on residential loans once all government subsidies and financial recovery support measures cease. In Australia, banks have massive amounts in the residential market. According to Church, once the market opens again, banks will have “impaired balance sheets.”
However, these factors add to the opportunity opened for the investment banks with available balance sheets to have more M&A transactions. As these investment banks go back to their staple structures, they are ready for more corporate activities.
These investment banks’ stapled structure will attract more corporate activities, particularly high-stakes M & A deals, because of financing certainty and deal secrecy. This structure guarantees the avoidance of news of targeted deals to leak, which may lead to a share price rise, compared with banking debt finance that requires sending various memorandums to many involving banks.
However, Church warned that the ramp up on these activities and services is still expected to take place months further. He said that the earliest increase in corporate activities might take place starting in 2021.