According to new data from the Australian Prudential Regulation Authority (APRA), the volume of loans held by APRA-regulated authorised deposit-taking institutions (ADIs) that exited their deferral status rose to $40 billion in July, surpassing the volume of new loans with repayment deferrals for the first time.
In March, many Australian lenders began offering borrowers the option to defer their loan repayments for up to six months in response to the economic fallout from the coronavirus outbreak. While the banks announced in July of this year that they would extend mortgage repayment deferrals by another four months (ending by 31 March 2021), this was being done on a case-by-case basis and with the preference that customers repay their loans, where appropriate.
According to new data submitted by ADIs to APRA, a large proportion of borrowers have exited their repayment deferrals or seen their original term expire (however, this does not necessarily mean they have restarted repayments, as it also includes loans that finished their original deferral term, but extended into another. These extended loans are also included in the figures for “new” deferrals).
What the figures show
As at 31 July 2020, 9 per cent of all loans held by the larger ADIs, totalling $240 billion, had deferred repayments.
Of this, approximately 70 per cent were for housing ($167 billion).
This means that in Australia, 9 per cent of all mortgages were deferred at the end of July 2020 (down from 11 per cent in June 2020). Approximately a third of these were for investor loans.
While there was a much smaller volume of small-business loans with deferrals at the end of July 2020, the APRA data shows that these account for a much larger proportion of total SME loans overall, around 17 per cent.
As well as reporting a drop in the volume of mortgages with deferred repayments, the ADIs also reported that there were fewer new loans issued with repayment holidays in July than those exiting.
The volume of exited or expired deferred loans increased to $40 billion in July, up from $33 billion in June.
The vast majority of loans (85 per cent) expiring or existing their deferral periods were housing loans.
Meanwhile, the volume of new or extended deferred loans in July totalled $19.5 billion, markedly down on the $39.6 billion of new loans that entered or extended deferral periods in June 2020.
Of this, $16.8 billion was on housing loans.
The APRA figures also show which lenders are holding the largest proportion of loans with deferrals.
The Lutheran Laypeople’s League of Australia Limited has a whopping 55 per cent of its loans on deferral – however, this only accounts for 115 loans.
Arab Bank has 18 per cent of its loans on deferral (163), followed by BOQ and Qudos Mutual (both 13 per cent).
Meanwhile, several banks (including ANZ, Citigroup, ING, Judo Bank and Mutuals Equity Bank) bucked the overall trend and saw a higher volume of new or extended loan deferrals than they did expiring or exiting.
The APRA data comes just days after the regulator issued a letter to ADIs, informing them that it has amended a paragraph of its credit quality prudential standard, which had previously prevented lenders from restructuring a loan on more than one occasion.
As a result, temporary capital concessions granted by APRA in the wake of the pandemic will apply to COVID-impacted loans that have been restructured more than once.
“APRA expects that all restructures will be genuine attempts to return borrowers to a long-term sustainable repayment structure,” the regulator stated.
“However, in extreme circumstances, such as in the event of further lockdowns or further restrictions on activity, additional restructuring may be appropriate.”
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Annie Kane is the editor of The Adviser and Mortgage Business.
As well as writing about the Australian broking industry, the mortgage market, financial regulation, fintechs and the wider lending landscape – Annie is also the host of the Elite Broker and In Focus podcasts and The Adviser Live webcasts.