Australians have frozen $266 billion worth of debt so far. This one chart shows how few are able to repay it.

As Victoria re-enters lockdown, the number of Australians who will be able to exit deferral programs is again cast in doubt. (Steven Saphore, Anadolu Agency via Getty Images)

The equivalent of one in ten Australians isn’t making loan repayments right now, as COVID-19 shines a light on the country’s debt problem.

Australia’s banks have deferred repayments on some $266 billion worth of loans, according to new figures from APRA.

“Housing loans make up the majority of total loans granted repayment deferrals although small business loans have a higher incidence of repayment deferral,” the regulator said, noting nearly one in five business loans had been frozen compared to a little over one in ten mortgages.

The figures, current to the end of May, show a serious uptake of the initial six-month freeze offered to bank customers, which was extended to January earlier this week.

Before Australia began shutting down in the middle of March, less than 2% of loan repayments were deferred.

While noting new applications to freeze repayments “slowed” in May, APRA emphasised this “does not necessarily indicate a trend” and revealed that some banks are still trying to process those requests lodged the month prior.

The enormous undertaking has seen the Australian banking sector hire 3,000 staff collectively just to try and administer the program.

But while the Australian Banking Association (ABA) and its members have trumpeted their success in getting customers paying again, the reality is a touch less triumphant.

While new loan deferrals slow, very few Australians are opting out altogether. (APRA)

The chart from APRA above indicates two important realities.

One, while the pool of customers still seeking a deferral is shrinking, there’s still a significant number who are struggling to make any kind of repayment. The fact almost $40 billion of loans was deferred in the month of May, while an improvement, is still concerning.

The second more important takeaway is that few are actually opting out of these hardship programs at all. In both months, the number of exits from the deferral program is dwarfed by the number of new entries. While this dynamic is expected to change as some states reopen, it casts doubt on the confidence banks have expressed.

Unsurprisingly, some lenders have struggled far more than others. While banks have proven happy so far to kick the can down the road until January – and possibly beyond – customers will eventually need to service this mountain of debt.

With Victoria headed back into lockdown, and unprecedented measures being taken in the hope the virus is contained there, a quick and orderly return to normality looks unlikely.

January may well arrive before then.


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