- Australia’s largest banks have put aside more than $7 billion in bad loan provisions related to COVID-19.
- With Australia holding some of the highest household debt in the world, a sudden and sharp recession is expected to diminish borrowers’ ability to repay their debts.
- So far, banks have frozen more than $240 billion in debts and are in the process of trying to get customers to recommence repayments.
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Australia’s lenders are battening down the hatches as they approach one of the biggest challenges facing the national economy.
This month, more than 780,000 customers that took out six-month loan deferrals have faced the prospect of letting them expire or extend them into January next year.
Called the “largest ever customer contact process in the industry’s history” by Australian Banking Association CEO Anna Bligh, banks have had to hire or redeploy an additional 5000 staff to contact borrowers.
Those that have answered their banks’ calls – and that’s only four out of five of them – have been encouraged to restart their repayments or rejig their arrangements, including going interest-only or even selling their property. Some will even suggest Australians dip into their super.
But while banks are putting on a brave public face, the unprecedented program of simply freezing loans as the economy stumbles is enough to raise anxiety levels. No less when there’s $240 billion of debt to be paid and most customers are expected to need more time.
Each is now in discussions with customers and figuring out what the risks may be that some customers simply cannot service their loans.
On Tuesday, the Bank of Queensland (BoQ) became the latest to quantify its projections. The bank put aside $175 million to offset its own set of deferrals. The latest APRA figures show it is holding some $5.5 billion in frozen debt, making up around one in eight loans.
It’s bigger rivals are sitting on even larger provisions. The Commonwealth Bank, Australia’s largest, put aside $1.5 billion in May. It holds $62 billion in deferrals, with around one in seven of mortgage holders receiving at least one JobSeeker payment.
Westpac the country’s second-largest has put aside $1.6 billion, followed by ANZ with $1.67 billion.
Interestingly, NAB put aside just half that of its peers, with $807 million. That’s despite the bank holding $15 billion more in frozen debt than Westpac and ANZ, on what’s already a smaller loan book.
It also holds the most deferred business debt, considered a riskier proposition than home loans.
For comparison, even Macquarie Bank is holding $1 billion, despite only having deferred loans roughly one-tenth that of NAB.
That may say just as much about Macquarie though. Bendigo, which has comparable deferments, has $127 million in its rainy day fund. Suncorp meanwhile has put aside $172 million.
Between them, those lenders hold $222 billion of the $240 billion deferred and have collectively prepared for more than $7 billion of that to sour.
Evidently, those figures are subject to change, with next month’s APRA figures to show how the transition from deferment to repayment has fared between them.
Even so, it’s clear there’s a group of Australians the banks think are in over their head.