Citi has announced changes to its residential credit policy to ensure it “continues to lend responsibly” amid growing credit quality risks from the COVID-19 crisis.
The bank has informed brokers that it will now require a credit officer to verify an applicant’s employment status prior to final approval, to ensure that there have been no changes to the borrower’s capacity to service the loan.
Borrowers will be required to provide confirmation from their employer or a bank statement with a salary credit no older than seven days at the time of final approval.
Self-employed borrowers will need to provide business activity statements for the March quarter before conditional or final approval, or bank trading statements from the most recent three-month period.
Moreover, Citi has announced that effective immediately, it has temporarily suspended new-to-bank loan applications “reliant on income from overseas”.
Citi joins a number of other lenders in tightening its credit policy for new lending in response to the economic fallout from the COVID-19 crisis.
Most recently, Westpac Group – which includes Bank of Melbourne, BankSA and St.George Bank – announced a temporary reduction to the maximum loan-to-value ratio (LVR) for self-employed applicants to 80 per cent, excluding them from being eligible for mortgage insurance.
Westpac claimed that the revision reflects the “impact that restrictions associated with the COVID-19 pandemic have had on self-employed workers”.
The major bank also reduced the acceptable income threshold to 60 per cent across a number of non-base income types, including bonus, overtime, dividend and commissions income.
Such changes have come in anticipation of a spike in loan defaults off the back of the COVID-19 crisis.
Last month, S&P Global Ratings reported that it is forecasting an 85 bps increase in credit losses across the Australian banking sector’s loan portfolio in the 2020 financial year (FY20).
The 85 bps increase, which is expected to moderate to 50 bps in 2021, amounts to approximately $29 billion in gross loans, nearly six times higher than the historic low in FY19.