Transcript of Question & Answer Session New Financial Statistics: The Value of Sound Data in Troubled Times

Thank you Marion, just a reminder to everyone, you can ask questions during the Q&A session which is just about to begin. If you would like to ask a question, please ask via the chat function which is found in the bottom right hand corner of your screen.

Marion, first question for you. I think you might have already touched upon this, but if you wouldn’t mind reiterating, that would be great. Where can we find the published EFS data?

So the EFS data are published in a variety of places, depending on what parts you’re looking for. The Reserve Bank publishes on their website the statistical tables. Quite a large variety relate to the financial aggregates, which, as I said, we produce. And you could just go to the statistics area on our website and you will find there those tables. There’s also tables for interest rates and we actually have quite detailed cuts of that data. Those are new tables we have been setting up at the beginning of the year as we got that data.

All the data on the Reserve Bank’s website are aggregate data but you can also go to APRA who publishes monthly ADI statistics, so the balance sheet statistics, and that’s data by individual lenders. So you can go to their website if that’s the part that you’re interested in. The ABS produces the lender indicators based on the EFS data, but there is also EFS data input into their national accounts.

Great, thank you. The next one relates to one of the charts that you had up there which showed that the fixed interest rates were much lower than the variable interest rates and the question simply asks, why are fixed interest rates so low?

This has been certainly a very interesting development because, as you can see, from the little data that we had, the insight into fixed interest data has increased much with the EFS collection. Now, that gap [between fixed and variable rates] has widened. So fixed interest rates are typically priced off what’s known as the swap rate which has a forward-looking component of where the markets think the interest rate will be. And so the fact that we have put in place forward guidance that interest rates will remain low, for quite a period, has actually lowered those swap rates.

There are also factors that have to do with the term funding facility that would play a role here, where we are providing fixed rate loans and so that has also reduced the swap rate. So it’s really key to that element.

A third element should not be neglected. To anyone who has gone out there and looked at what banks offer, it’s quite clear that banks are competing at the moment particularly on the fixed interest rate loan. If anyone has been looking for new loans, that is the margin where banks are competing heavily and that’s probably contributed also to those loan rates becoming lower.

Great thank you. The next question is about the data being submitted and given the huge focus of the EFS was around improving data quality and the associated controls and assurance, what are your thoughts regarding the quality of the data being submitted through EFS?

Like always, you see evolutions. I think it’s been a big change for us. We had no revamp of the financial data collection for two decades. So this is the first change in two decades. Look, we are actually generally happy with the quality of the data. We would not publish on our website data that we would think are unreliable. But it is also early days yet to see whether we get further improvements. If we look closer and more fully, this may clarify some data items where we think some more guidance is needed. But we still think it is a big step forward and what we’ve got so far is looking very consistent, and at times, better than what we had before.

Great, thank you. The next one relates to the buy now, pay later sector. And the question asks on the contribution to personal credit growth chart, what is the other category composition. Does this category include the buy now, pay later sector?

So it does include the credit component of buy now, pay later. So there’s certainly cut-offs when they don’t have to report but yes, they are included. They account for about 2% of personal credit. So it’s actually a small base. So the answer is yes, they are included and they’re about 2% of personal credit.

Thank you. The next question also relates to the buy now, pay later sector and it just quite simply asks, should the buy now, pay later sector be regulated like the banks?

Look, this is not my area of expertise, so I can’t comment. I think there are other parts, there are some aspects of regulation that the Reserve Bank is looking at in the context of the review of the Retail Payment Regulation as an aspect of that. There are documents on our website for that, but it’s not really an area I’m an expert on.

Great, thank you. Obviously low interest rates have been with us for some time now and probably will be for some time in the future. This question relates to banks’ profitability and says what are the effects of low interest rates on banks’ margins and/or profits.

I think we will have to see where the profits will go or the margins will go. I speak only about the data that I see. But what we can see in the data that we have is that banks have passed through the cash rate reduction to the lending rates. Different sectors, so business and household interest rates have adjusted by different margins, but overall lending rates have been reduced roughly in line with the cash rate reduction. And of course, we also know that funding costs basically have been reduced by a similar ballpark. So where exactly that falls we will have to see, as the banks’ profit reporting and margin data are coming out over the next year.

The next one relates to repo transactions, or repurchase agreements, it says, will the RBA be publishing additional data on the repo market given the expansion of items collected?

I think we’re still getting familiar with the data and getting our head around what happens. You will certainly see some aspects of dealing with that data in the future. We will have to assess which parts are useful to publish for the broader audience that we try to target with our statistical output. So the answer is it’s a relatively new data set, so we’re still looking for how to best look at it and present it.

The next one relates to non-banks, or non-major banks anyway, and it says that we’ve been hearing that the non-major banks are turning away deposits, why do you think that is?

I want to stick to what I can see in the data, rather than anecdotes and what I can say is that the latest public data for July presents that deposits have increased and that is true for major banks and non-major banks alike. That’s what the data say. I don’t have evidence on individual experiences either way.

All right, fair enough. The next questions says, can you please elaborate on the decline in personal credit?

So that is a very interesting phenomenon and as I said, during the talk, there is a longer term structural issue going on here, as well as the latest story in COVID with people not using their credit cards, because they actually didn’t go out and go shopping during that March/April period. And the longer term story is actually one where we’ve seen generally that people use credit cards less. And one of the reasons for that is that we’ve had, for probably a decade or more, an increase in prevalence of other accounts, such as mortgage offset accounts that provide exactly the same facility as those loans but it’s secured against the mortgage so the interest rates are low on that. We find that people use those offset accounts and debit cards in the way they used to use credit cards.

And that is certainly one story that is in there, there’s a few other stories in there as well. These have to do really with how banks have responded to responsible lending obligations in some segments of the market and that led to a shift of where the loans are being offered.

Great thank you. The next question is in relation to fixed rate loans. We have seen a shift to more fixed rate loans. These are still relatively short term for the most part, two to three years. Does the data suggest these terms might increase over time?

It’s early days but I think we have heard a bit of that but nothing that establishes a trend, so I haven’t seen anything firm for that. I think we just need to wait and see whether that’s a market that’s developing or not.

Thank you. Given the amount of deferrals banks allowed for loan repayments over the last six months or so, can you elaborate more about loan payments data? Has it been distorted by the banks’ deferrals of interest, et cetera?

So there would be an element of that in the loan payments data. So some of the loan payment is what you pay in terms of principal and if you pay less principal, your loan payment is lower. So you would have some element of that, but there’s a lot of other driving factors. And what we’ve found is that the biggest driving factor of the most recent episode was really the increase in offset accounts. Many people use these actually as their main cheque account. So it is hard to distinguish people putting more money against their loan from people just having more income that’s sitting there, because they couldn’t spend it. But in any case, a loan payment deferral is going in the other direction because you would be paying less on your principal at that time.

Thank you. I think this one is a little bit cheeky but I will pose it to you anyway and I’ll understand if you don’t want to answer it. It says here, just on data, I was wondering relating to the employment data just released. Is this the turning point for the labour market or do you still expect employment to head higher later in the year?

I will give that one a pass.

Okay. I saved that one until last because I thought it was a little bit controversial. Thank you, very much, Marion. Are there any final thoughts in regard to the EFS, any messages for the participants today?

I have been working with the EFS for the last three years. It’s been a very interesting collaboration with the industry and I just wanted to reiterate that we have really appreciated the collaborative spirit that we have found in working together on this great new data collection.

Tremendous. Thank you very much for your time today and thank you to all of our participants for attending the meeting and we wish you all the best, thank you.