Banks warn $15bn NRF could ‘crowd out’ private investment

Joseph Brookes
Senior Reporter

Australia’s big banks are warning the Albanese government’s $15 billion industrialisation fund could “crowd out” private capital despite the green bank it is modelled on having spurred co-investments for more than a decade.

The main banking industry group on Wednesday said it supports the National Reconstruction Fund (NRF) but wants it to work closely with private investors and focus mostly on emerging industries and early-stage projects so it is “supplementing rather than substituting existing sources of finance”.

The banks are also calling for a panel of private sector financiers to advise on the government investments – although not a representative on the board – to give the NRF the best chance of emulating the Clean Energy Finance Corporation’s success.

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Crowded out: Banks want a $15 billion govt fund to supplement but not substitute its credit financing

Appearing before a Senate inquiry into a bill that would establish the National Reconstruction Fund Corporation, the Australian Banking Association chief of policy Christopher Taylor said the group supports the intention of the legislation but subsequent investment mandates will need to careful design.

The ABA represents 20 Australian banks, including the Big Four. It is pushing for the fund to invest in emerging industries and research and development rather than in areas that already have access to credit financing.

The NRF will target seven priority sectors and projects within them that transform and diversify the economy by offering loans, guarantees and equity investments. The support is slated to include projects that value add to established sectors like agriculture.

Mr Taylor said credit financer are already supporting some of theses sectors, including more than $100 billion lent to agriculture, forestry and fisheries businesses in Australia.

“There may be times when a project would otherwise be funded on reasonable commercial terms by the private sector. In which case a fund investment may crowd out sources of finance that would otherwise have invested,” Mr Taylor said.

“In other cases it might be an emerging technology, in which case that consultation may understand the approach that could be taken to that investment and the time horizon for the investment in order to attract down the road further capital from the private sector as that technology is commercialised and expanded.”

Mr Taylor acknowledged that the Clean Energy Finance Corporation on which the NRF is broadly modelled on had a strong record of attracting additional investment rather than crowding it out, after consistently leveraging between two and three times as much private capital on its own investments.

But the NRF’s wider scope means it will need to be even more careful in what it backs and how it structures investments, he said.

“This fund has a mandate of $15 billion but unlike the CEFC, which is really focused on one particular sector and [its] focus being clean energy, this is focused across a number of priority areas,” Mr Taylor said.

“So making the right investments in the right way will be really critical.”

The NRF could mitigate the risk of crowding out investment by consulting and collaborating with industry, Mr Taylor said. The banks want a panel of financiers established to represent private capital and advise the NRF board and executives.

“It’ll be important for the corporation to be engaging actively with industry to understand both technologies and investment opportunities. And as we’ve suggested with the panel of financiers, understanding the risk appetites for particular investments that could be made and how those can best complement the approach of the private sector.”

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