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Banks to extend loan repayment holidays

by Charbel Kadib7 minute read

Borrowers will be “breathing a sigh of relief” after the banking sector announced it would extend loan deferral periods for distressed customers.

The Australian Banking Association (ABA) has confirmed that members will be implementing a new phase of support for borrowers impacted by the COVID-19 crisis.

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Following discussions with APRA and ASIC, the banks, including the big four, have agreed to extend loan repayment holidays by up to four months (no later than 31 March 2021) for customers unable to meet their obligations due to income loss linked to COVID-19.

For most lenders, extensions of the repayment holiday will only be considered upon the expiry of current deferral periods (most of which expire in September) and on a case-by-case basis.

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According to the ABA, approximately 800,000 borrowers have deferred repayments on their loan since the onset of the COVID-19 crisis, totalling roughly $260 billion.

The ABA also noted that banks would also offer alternatives to repayment holiday extensions, including:

  • extensions of the loan term;
  • temporary conversions to interest-only repayments;
  • debt consolidation; or
  • a combination of the above.

“Customers will be expected to work with their bank during this extra time to find the best solution for them,” ABA CEO Anna Bligh said.

“A deferral extension of up to four months will not be automatic. It will be provided to those who genuinely need some extra time. Many customers may need less than four months to either restructure their loan or get back into full repayments.”

She continued: “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.

“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.”

Government, business welcome announcement

Commonwealth Treasurer Josh Frydenberg has welcomed the announcement but urged borrowers with the capacity to service their loan to resume repayments.

“It is important that customers that can afford to make repayments continue to do so,” he said.

“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.”

He added: “The government acknowledges and thanks the banks, APRA and ASIC for their collective efforts in support of Australians who are facing financial hardship during this difficult time.

“The Morrison government continues to support both businesses and individuals that have been impacted by the coronavirus crisis and the actions of the banks and APRA today will complement this support and help more Australians get to the other side.”

The Australian Small Business and Family Enterprise Ombudsman, Kate Carnell, has also welcomed the second phase of loan relief, which she said would provide significant relief to businesses anxious about the expiry of repayment holidays.  

“Small-business owners who have been worried about how they will repay their loans come September will be breathing a huge sigh of relief today,” Ms Carnell said.

“I would encourage small businesses who are experiencing financial difficulties to call their banks now to make the necessary arrangements.”

Ms Carnell made particular reference to Victorian business currently facing another six weeks of shutdown measures to curb the spread of COVID-19.

“As we navigate this unprecedented crisis, it’s encouraging to see our banks are taking this proactive and flexible approach,” she said.

“We want to see as many small businesses survive this difficult time as possible. The ABA announcement [is] an important piece of that puzzle.”

Speaking on behalf of aggregation group Connective, director Mark Haron stated that brokers were primed to help customers in need with credit advice.

Mr Haron commented: It’s going to take a long time for many Australians to get back on their feet financially and mortgage brokers will play an important role for clients as they navigate the next phase and the possibility of an extended period of deferral payments...

“As we have seen to date mortgage brokers can offer valuable support through times like this and we have no doubt that this will continue as they proactively work with their clients.”

The Connective director continued: “We welcome further initiatives to prevent Australians falling into a situation where they may need to default on their loan come September.

We encourage brokers to ensure they understand the changes, particularly each lenders approach. It is important that brokers know which of their clients have suspended their loan repayments and are communicating with those clients to help them to prepare.

“Connective has rolled out several educational content and resources to support brokers working with clients in these situations,” he said.

[Related: RBA stance unchanged despite looming ‘shock’]

Banks to extend loan repayment holidays
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Charbel Kadib

Charbel Kadib

AUTHOR

Charbel Kadib is the news editor on The Adviser and Mortgage Business.

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