The Australian Banking Association (ABA) has announced a new phase of support to avoid a "cliff" for customers in September, with those facing hardship due to COVID-19 able to apply for loan deferral extensions of up to four months.
The initiative is backed by the Australian Prudential Regulation Authority (APRA), which will give regulatory relief by extending its temporary capital treatment for bank loans with repayment deferrals.
The ABA estimates there are more than 800,000 loans that have been deferred worth over $260 billion.
Customers who are able to restart paying their loans will be required to do so at the end of their six-month deferral period, but debtors with reduced income and ongoing financial difficulty will be able to restructure or vary their loans.
The deferral option will be available if none of those outcomes can be achieved.
"Those who are able to repay their loans will resume doing so, which is in the best interests of those customers and allows support to be directed to those who need it," says ABA CEO Anna Bligh.
"This next phase of bank support will avoid a 'cliff' for customers in September and give them the breathing space they need to work with their bank and get back on their feet financially.
"To meet demand, banks have deployed over 5,000 extra frontline staff who will proactively contact and work with customers to find the right solution, but please be patient with bank staff as we enter this next phase."
The ABA explains credit reports will not be impacted for customers who recommence repayments on their existing loan or enter into a new repayment arrangement, so long as those arrangements are met.
Treasurer Josh Frydenberg says the Federal Government welcomes the ABA's announcement to support customers.
"APRA has also provided relief to encourage the banks to restructure loans where possible as a way of helping these customers," he says.
"This restructuring could include extending the term of the loan or moving from principal and interest repayments to interest-only for a period of time.
"It is important that customers that can afford to make repayments continue to do so. Borrowers that are facing considerable financial difficulty as a result of this pandemic, should talk to their banks and work with them to find a more sustainable approach."
Response from the banks
At the time of writing, ANZ (ASX: ANZ), Commonwealth Bank (ASX: CBA), Westpac (ASX: WBC) and Bendigo and Adelaide Bank (ASX: BEN) have made announcements about how they would be implementing the new measures.
ANZ chief executive officer Shayne Elliott says the bank's primary focus through COVID-19 has been to do all it can to help customers manage the economic impact of the pandemic, and while this is now "clearly more difficult with the recent developments in Victoria" that support will continue.
"For customers who have not taken advantage of the six-month deferral that option is still open to them," Elliott says.
"I would strongly encourage anybody uncertain about what the future holds or those who have been hanging on up until this point to get in contact with the bank.
"We have already deferred more than 100,000 home and business loans and we are checking in with those customers to work with them to get them back on track."
He notes many customers are already back making their repayments as they weren't as impacted as initially thought.
"There are however many customers on deferrals that remain in a difficult situation and we will work through a range of measures including restructuring loans and in some circumstances extending deferral periods," he says.
CBA confirms many retail and business customers have resumed paying deferred loans back in full or in part, but the bank will target its support to those people who most need it.
"We are committed to continuing our industry leading support for customers and businesses to help them get back on their feet and inject vital financial stimulus into the Australian economy," says CBA chief executive officer Matt Comyn.
"To date, our coronavirus measures since March 2020 have provided about $15 billion in direct financial support to customers and stimulus for the economy.
"Supporting customers who continue to experience financial difficulty is a priority and we are tailoring our support to make sure each customer gets the advice and assistance that suits them."
So far CBA has provided loan repayment deferrals to almost 130,000 home loans and supported 100,000 business customers.
CBA has also more than doubled the size of its Financial Assistance Solutions team to about 1,500 frontline staff to have conversations with our retail customers experiencing hardship. The bank is also using its unique machine learning technology to identify individual customers in hardship and direct its support where it is most needed.
"This next phase of our support reinforces the strong collaboration and effective cooperation between federal and state governments, regulators and the banking industry which has allowed so much to be achieved in such a short time," says Comyn.
Westpac acting chief financial officer Gary Thursby highlights the pandemic will have a longer term impact on some customers and financial support will be required. The bank has helped more than 23,000 small business customers since the start of COVID-19.
"In discussion with the industry and regulators, we will be making changes to allow more time and breathing space for customers who aren't in a position to return to full payments again from October," says Thursby.
"This includes access to tailored support through our customer assistance program, where our specialist team will work with customers to review their financial circumstances.
"For customers who remain under stress but can still contribute towards their loan repayments, we will provide support where we can help work through options that may be available to adjust their loan," he says, adding there is an expectation a significant number of customers will be able to resume regular repayments come September.
Bendigo and Adelaide Bank has also emphasised its consumer, business and agribusiness customers who are experiencing reduced incomes or extended financial difficulty may be eligible for the four-month deferral extension.
"Ultimately, we want to support customers to make full, regular loan repayments and it's in their best interests to do so as soon as possible, so they can strengthen their financial wellbeing," says the bank's managing director Marnie Baker.
"We are currently undertaking a check-in process with consumer customers that have accessed a repayment arrangement due to COVID-19 to assess what further support they need and to better understand their current circumstances given the impact of the pandemic.
"We know that a tailored approach with each customer achieves more meaningful results for their specific circumstances."
Baker highlights it is a difficult time for many of Bendigo and Adelaide Bank's customers, but she hopes to minimise the impact that comes with unexpected events such as COVID-19.
"In the same way we have provided and continue to provide support to those affected by natural disasters, the Bank and its Community Bank partners will continue to support the recovery of customers and communities and adapt, where required, how we invest profits into communities to meet new and evolving local needs as a result of COVID-19," she says.
"We said at the start of this pandemic that we're here for our customers and their communities and this longstanding commitment continues."
Updated at 10:19am AEST on 8 July 2020.
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