8.5 per cent of loans still have deferrals

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 has continued to outpace new deferrals.

As at 31 August, 8.5 per cent of total loans outstanding – equating to around $229 billion worth of loans – had temporary repayment deferrals applied to them.

The volume of exits continue to outweigh those requesting new repayment deferrals for the second consecutive month.

In August, $24 billion loans either exited their deferral period or saw their period expire, compared with $14 billion of new or extended deferrals.

However, while the exits continued to increase, the pace of exits slowed over the month, with total exits decreasing 41 per cent from $40 billion in July. 

Housing loans continue to make up the majority of total loans granted repayment deferrals, although small-business loans have a higher incidence of repayment deferral, with 16.2 per cent of small-business loans subject to repayment deferral (totalling $53 billion), compared with 9.0 per cent of housing loans (totalling $160 billion). The remaining $16 billion is for “other” loans, such as personal loans.

While the figures mark a slowdown in exits, it is expected that the September figures will show an acceleration. 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. As such, those taking the six-month COVID-19 assistance packages in March would conclude their initial support package in September.

However, 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 is being done on a case-by-case basis and with the preference that customers repay their loans, where appropriate.

Last week, APRA issued a letter to the banks to outline acceptable practices for the management of loans transitioning from repayment holidays.

After reviewing plans for the management of deferrals – submitted by ADIs in response to a request from APRA in July – the regulator acknowledged that successful implementation “remains a critical risk” for both lenders and borrowers.

As a result, APRA stated that it expects ADIs to “exercise appropriate governance and monitoring over all aspects of the plan’s implementation”, to ensure that lenders can “identify and respond to any material issues that may arise”.

This latest guidance offered by APRA follows its decision to expand capital concessions for loans impacted by the COVID-19 crisis.

APRA recently removed a requirement under paragraph 8 of APS 220, which prohibits lenders from restructuring a loan subject to COVID relief more than once.

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 on more than one occasion.  

The revision was made following consultation with the banking sector, which called on the regulator to provide “additional flexibility”

[Related: APRA issues best practice guidance for deferrals]