Deferrals not needed to be treated as arrears: APRA

The Australian Prudential Regulation Authority (APRA) has announced regulatory support for banks offering temporary financial assistance to borrowers impacted by the coronavirus pandemic and the latest round of lockdown restrictions.

The Australian Banking Association (ABA) recently announced a national support package for all small businesses and home loan customers significantly impacted by current lockdowns or recovery from recently lockdowns, regardless of geography or industry.

Support includes business banking repayment deferrals, everyday banking support, and home loan support, including deferrals on a month-by-month basis.

Since then, lenders have been offering various support measures to business and home loan customers, including interest-free temporary overdrafts to assist businesses with cash flow if revenue has reduced significantly due to lockdown, an extension of the freeze on foreclosures for customers who are unable to meet their home loan repayments, other loan deferral and repayment reduction measures.

In response, APRA is providing regulatory relief to authorised deposit-taking institutions (ADI), whereby for eligible borrowers, ADIs will not need to treat the deferral period as an arrears period of a loan restructuring.

This will apply to loans that are granted a repayment deferral of up to three months before the end of August 2021.

“This will provide banks and borrowers with additional flexibility to manage the period ahead,” APRA said.

The measures will apply regardless of whether or not the borrower has previously been granted a repayment deferral due to the impact of the pandemic.

For transparency, APRA will require ADIs to publicly disclose and report the nature and terms of any repayment deferrals and the volume of loans to which they are applied.

Furthermore, ADIs must continue to provision for these loans under relevant accounting standards.

The latest regulatory relief is similar to the temporary support measures APRA announced in March 2020, with the temporary treatment ending on 31 March 2021.

Similar to 2020, eligible borrowers include where the ADI “reasonably” believes that the borrower’s ability to repay according to the original loan terms has been, or is likely to be, affected by the coronavirus pandemic, and the loan was not 90 days past due or impaired at the time a repayment deferral or restructure was provided to the borrower, APRA explained.

APRA will release an updated prudential standard in July to formalise this new treatment, similar to the approach taken in 2020.

The treatment will be formalised as part of APRA’s prudential standards through Attachment E (COVID-19 Adjustments) to Prudential Standard APS 220 Credit Quality and Reporting Standard ARS 923.2 Repayment Deferrals.

[Related: Banks welcome NSW COVID support]