Measures of banks’ asset quality have deteriorated in recent months and the trend is likely to continue over coming months, given the unwinding of support measures such as JobKeeper, the Reserve Bank warns.
In its latest Financial Stability Review, the RBA said the end of APRA’s concessional treatment for loan repayment deferrals in March will also lift loan arrears, as APRA’s concessions allowed most loans on deferral as part of COVID-19 support packages to be treated as “performing”.
“Current indications are that the increase in non-performing loans will be modest. The vast majority of borrowers who requested repayment deferrals last year have been able to resume repayments,” the RBA said.
The transient growth of residential property prices will limit potential losses for now by enabling borrowers struggling with repayments to sell without losing money.
The RBA said most households remain in a good position to service their debt.
Around half of all mortgages have prepayment buffers equivalent to more than three months’ worth of repayments and more than a quarter have buffers exceeding two years of repayments.
The proportion of “risky” home loan borrowers has fallen from around 15 per cent a year ago to around 10 per cent now. The RBA measures risky mortgages as those with low of no prepayment buffers (excluding investors and fixed-rate borrowers).
Households with at least one member working in recreation and personal services, transport and storage, and retail were over-represented among those seeking assistance last year.
The share of mortgages still on deferral at the end of February was 0.7 per cent.