Treasurer Josh Frydenberg is dining with the CEOs of Australia's largest 15 banks as they brace for $10 billion in loan deferrals to expire

Treasurer Josh Frydenberg (SMH, Dominic Lorrimer)
  • The Treasurer is meeting with the heads of 15 Australian banks in Canberra on Wednesday as key support measures are withdrawn.
  • The remaining $10 billion worth of loan deferrals are due to expire at the end of the month along with the federal government’s JobKeeper wage subsidy.
  • “Wednesday’s meeting is an opportunity to ensure that all banks are pulling in the same direction in the interests of their customers and the Australian economy,” Australian Banking Association (ABA) CEO Anna Bligh said.
  • Visit Business Insider Australia’s homepage for more stories.

Canberra is playing host to the heads of every major bank in the country as the Australian economy is forced to stand on its own two feet.

With $10 billion worth of loan deferrals on their books set to expire, each will have the ear of Treasurer Josh Frydenberg at a dinner on Wednesday. Earlier in the day they will also meet with Shadow Treasurer Jim Chalmers for lunch.

“Wednesday’s meeting is an opportunity to ensure that all banks are pulling in the same direction in the interests of their customers and the Australian economy,” Australian Banking Association (ABA) CEO Anna Bligh said.

Expected to dominate the dinner table conversation are the 28,000-plus Australians who are still unable to to make their repayments. Each now has just two weeks before outstanding deferrals must expire and Australian borrowers begin entering formal hardship measures and go through a new uniform assessment process.

The deadline coincides with the termination of JobKeeper, due to also end at the end of this month. Accordingly, the ABA says the agenda will centre around “supporting those customers still experiencing financial difficulty, assisting the nation’s economic recovery and ensuring that credit flows into a recovering economy.”

As government and financial support is ripped out, Australia will get the first look of how the economy is really faring in the coming months. Unemployment is expected to plateau as a result at around 6.4% while struggling small business owners contemplate winding up their operations. It has even been speculated Australian property prices, that sacred cow, could cease their endless run higher as some of the steam comes out of the economic recovery.

Banks have made significant progress with struggling borrowers

Twelve months ago, banks began allowing borrowers to freeze their repayments as the pandemic clouded the economic outlook. Ahead of Wednesday’s meeting, newly released figures from the association show 22,480, or one in 20, home loans are still deferred, as are 2,803 business loans. In sum, they represent 3.5% of all loans issued in Australia.

Enormous progress has been made on the front, with total deferrals peaking at some $245 billion in July when as many as 11% of all home loans were on hold.

“The latest loan deferral figures show that while the vast majority are back on their feet, some customers are still struggling. These customers should talk to their bank now about the path ahead. Banks are ready to take the call,” Bligh said.

On balance, major banks appear to have fared the best. Across the big four, just 0.2% of small business loans and 0.5% of home loans are still on ice. It’s a positive sign given Westpac, ANZ, NAB, and CBA are exposed to around 80% of the mortgage market.

However, the banks and the Treasurer both know there is a long way to go before they can claim their ‘mission accomplished’ moment. Bligh told Business Insider Australia last month she expects the percentage of borrowers in arrears will begin rising while ABA chair and CBA CEO Matt Comyn is anticipating some “difficult conversations” with customers.

The latest APRA data meanwhile shows that risks are growing in the lending market. The proportion of loans issued for more than than six times a borrower’s income is beginning to approach the 20% mark. It has sparked concerns over new loans at the same time nearly one million Australians are shoved off JobKeeper.

There is clearly plenty at stake in this transition period. If the Treasurer and his guests don’t get the balance right in the next few months, it’ll be Australian bank customers, and voters, who will ultimately pay the price.

It would certainly spoil their next dinner party.

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