Promoting confidence to invest
Entering the last month of 2020, there is at least some reason for a more positive outlook in Australia than might have seemed likely a few months earlier. A robust recovery will depend on supporting confidence and willingness to invest within the private sector.
PLANK Everybody has a vaccine in their forecast already, I think, so the news really only confirms what we were already expecting. It might come a little earlier than expected and it is really important that the arrival of an effective vaccine has been confirmed, but it’s not really a game-changer.
For us, the game-changer has already happened: the combination of stimulus and health outcomes mean the economy has recovered much faster than we anticipated. The question we are thinking about for 2021 is whether the economy coming back leads to calls for a faster wind-back of stimulus. This question applies globally.
For instance, our forecasts currently expect the TFF [term funding facility] and QE to be extended beyond the middle of 2021 – perhaps in a slightly smaller form. If the economy is back to its pre-COVID-19 level by that point there could be calls for QE to come to an end. We don’t expect this, and the RBA [Reserve Bank of Australia] has made it clear that ending stimulus too early would be a mistake. The economy was performing well below trend even before the pandemic, with low wage growth in particular, so the RBA seems quite happy with the idea of letting it run hot.
The challenge for the RBA is what it would do if house prices are running at double-digit growth by mid-2021. I suspect we would end up with the return of macroprudential policy either late in 2021 or in 2022. At the moment, the RBA wants higher house prices: they are positive for inflation and the wealth effect. It is possible this could become too much of a good thing, but I still don’t think this would mean the end of low interest rates or even QE.
MEDARD There is going to be no shortage of willingness to lend on the banks’ part. Our customers have plenty of cash on hand, though, so they probably don’t need any more lending.
What corporate Australia needs is certainty and confidence to invest in growth. Certainty is probably not going to be here for a while, but the economic and sentiment figures coming out of Australia are, encouragingly, showing signs of growth.
The banks have the liquidity, the capital and the willingness to lend – we would be quite happy to get some of the deposits off our balance sheets and into productive assets. It is up to the corporate sector to start moving forward, putting 2020 and COVID-19 in the rear-view mirror.
CHOI As a bank, this includes a willingness to do more in Asia-Pacific. We are taking a more holistic approach with our customers, by which I mean talking to them about providing bridge loans and short-term facilities and then, in time, refinancing via the capital markets when conditions are favourable. For example, we foresee an uptick in acquisition financing.
We also see a growing environmental, social and governance opportunity. Companies that we would never have imagined doing so even six months ago are asking how to access this market – and I think the uptake will increase dramatically in 2021.
TONKIN Our approach to market, and market access, is that it needs to be carefully considered. While the outlook appears to be positive some of the challenges borrowers faced in 2020 are likely to remain in 2021.
ANZ’s focus is on financing transition through our debt-advisory activities in renewables, our greenfields project and acquisition-finance capabilities, and sustainable finance in loan syndications and capital markets. We expect activity in this area to continue to accelerate in line with customer and investor demand
TAPLEY The focus in sustainable finance will continue to be on the transition story, in bond and loan format, as well as sustainability-linked loans – right across the region, not just in Australia. There will be a need to match the ambition of net-zero tasks with funding strategies, and we will see more treasurers exploring this connectivity. We should also all keep our eyes on the regulatory sector – there is a lot more to come from there.
HECTOR Engagement with government is particularly relevant in the healthcare sector. When the full impact of the pandemic started to become clear – including the potential requirement for significant extra capacity in the healthcare system – there was a need for an effective nationalisation of the private-hospital system.
This incorporated excellent engagement from government on what the banks would need to support that transition and underwrite the costs of private hospital operators noting elective surgeries would need to be deferred.
The only issue is this is, at best, earnings-neutral for private providers. They are now starting to rebuild their elective-surgery rosters, so they are back in growth mode. But there is an ongoing need for balance-sheet flexibility, which provides a role for the banks.
In aged care, a royal commission was in full flight when the pandemic arrived. This is a particularly vulnerable cohort, though with a few notable exceptions Australia’s system has performed relatively well. But it is a sector where I expect there will be quite substantial consolidation as we get to the end of the royal commission. Again, there will definitely be a role for experienced banks in the sector, such as ANZ.