(28 September 2020 – Australia) Australian banks are facing their biggest challenge since the 2008 Global Financial Crisis (GFC) as unprecedented government fiscal stimulus measures are wound back.
Banks are sweating on what proportion of the A$240 billion in deferred loans, split by A$167 billion in mortgage debt (one tenth of total loans) and A$55 billion in business loans (one fifth of total loans), could fall into the bad and doubtful debts (BDD) category when repayments resume at the end of Q1 2021. BDD’s are expected to peak at the end of H1 2021 as regulatory capital relief granted by the Australian Prudential Regulatory Authority (APRA) concludes and loans convert to 90 days overdue. The banks are preparing for a wave of loan defaults by scaling up their financial hardship divisions while the Australian Financial Complaints Authority (AFCA) is prepared for a deluge of complaints.
NAB CEO Ross McEwan issued concerning evidence to a parliamentary committee this month that one in five customers with deferred loans had ‘gone rogue’ by failing to respond to the bank’s recent round of check-ins, noting the figure has been declining as deferrals draw closer to expiry.
“The thing that distresses me right now is, when we’re making calls to customers to check in, 20 percent won’t pick the phone up or call back, even if we text, email and phone. We need to get over that. I think that openness and customers picking up the phone are going to be the vital pieces of this” NAB CEO Ross McEwan stated to the parliamentary committee.
“AFCA does expect to see more financial difficulty related to COVID-19 complaints over the next six months as the banks reassess loan deferrals. If you received a deferral on loan repayments from your bank earlier this year and continue to experience financial hardship as a result of COVID-19, it is extremely important that you contact your bank as soon as possible to talk about the options available to you” said AFCA CEO David Locke.
“These numbers are lower than anticipated because of the proactive approach taken by the banking industry on repayment deferrals” Mr Locke added.
“It’s not so much the calm before the storm; it’s more like the nirvana before the storm. No one really knows what’s going to happen when the support is withdrawn, but it’s hard to conclude that things are not going to get a lot tougher. It is alarming that 20 percent of NAB’s customers on repayment holidays failed to respond to the bank’s calls” Jefferies’ Bank Analyst Brian Johnson commented.