The Australian Prudential Regulation Authority has made regulatory adjustments to accommodate the banks’ decision to extend their loan deferral periods by another four months.
APRA yesterday announced an extension of its temporary capital treatment for bank loans with repayment deferrals, as well as temporarily adjusting the capital treatment of loans where terms are modified or renegotiated.
In March, APRA said that banks that offered borrowers impacted by COVID-19 an option to defer payments for a period of up to six months need not treat the repayment deferral period as a period of arrears for capital adequacy and regulatory reporting purposes.
It said it will write to ADIs this week, advising that this approach will be extended to cover a maximum period of 10 months. The 10-month period will apply from the start of the deferral period or until 21 March 2021, whichever comes first.
The regulator said it expected banks to extend deferral or grant new deferrals only after undertaking an appropriate credit assessment “to ascertain if an extension or new deferral is appropriate for the particular borrower”.
In a new regulatory concession, where an ADI restructures an affected borrower’s facilities before 31 March next year with a view to putting the borrower on a sustainable financial footing, the loan may continue to be regarded as a performing loan for capital and regulatory reporting purposes.
APRA said: “While some customers are able to return to making normal repayments in the near future, for others it may be preferable for an ADI to restructure or renegotiate the loan to provide a revised repayment schedule.”
The banks will have to use their judgment when exercising this concession. “In some cases, banks will need to recognise that loans are permanently impaired,” APRA said.
The Australian Banking Association said the approach its members will take is that customers who can restart paying their loans at the end of their six-month deferral period will be required to do so.
Customers with reduced income and ongoing financial difficulty will be offered variations or restructured loans to ensure they can return to making repayments. Restructuring options include extending the term of the loan, switching to interest-only payments for a period of time and consolidating debt.
Where customers cannot restart payment, they will be eligible for an extension of their deferral for up to four months.
“A deferral extension will not be automatic. It will be provided to those who genuinely need some extra time,” the ABA said.
Commonwealth Bank said that since March, it has agreed to repayment deferrals with almost 130,000 home loan borrowers and 100,000 businesses. It estimates the total value of its financial support at A$15 billion.
Westpac said it has agreed to more than 130,000 home loan and 23,000 business loan deferrals.
ANZ said it has provided repayment deferrals on more than 100,000 home, personal and business loans.
NAB said it has agreed to more than 98,000 home loan deferrals and more than 39,000 business loan deferrals.
All four big banks said they had already begun working with impacted customers to assess their ability to begin repaying their loans,