The Australian Banking Association wants member banks to include savings buffers in their programs for dealing with customers in financial hardship.
The savings buffer plan, which would allow a customer on a payment plan to have a small amount of funds set aside by their bank for unexpected expenses or emergency bills, is included in new ABA hardship guidelines issued on Friday.
The ABA said: “By the end of 2023, all banks will consider providing the option of a savings buffer when calculating financial hardship payments plans.”
Financial Counselling Australia has been advocating for such a measure for years. In 2016 it proposed the inclusion of savings buffers in responsible lending requirements.
FCA said consumers, especially those on low incomes, should have the opportunity to build a buffer against financial shocks and meet unexpected costs.
"Having a savings buffer is a key element in building financial resilience within households and enabling consumers to take control of their finance," FCA said.
One bank has already gone down this road. In May, Westpac adjusted its financial hardship arrangements to allow customers to reduce their mortgage payments and build a savings buffer.
The bank said it based its move on research showing that half of Australians had to pay unexpected bills in any given 12-month period. These bills included things like car repairs, home repairs, medical bills and pet emergencies.
Forty per cent said they were unprepared for such expenses.
The bank said it will allow customers in hardship to adjust loan repayments to allow them to build a buffer of a minimum of A$100 a month.
The ABA also provided data on the demand for hardship assistance during the recent lockdowns, reporting that close to 69,000 customers have received hardship assistance since July 8 this year.
This figure includes 27,000 home loan deferrals and more than 4000 business loan deferrals.
The ABA said the peak in demand was in early August. There were 12,000 hardship assistance approvals in the past month.