Loan deferrals spiked in August amid lockdown

The Australian Prudential Regulation Authority (APRA) has released new data on temporary loan repayment deferrals for August 2021 amid the coronavirus pandemic lockdowns, which revealed that a total of $11.9 billion worth of loans (0.5 per cent of total loans outstanding) are on temporary repayment deferrals.

Deferrals rose from $5.6 billion – or 0.3 per cent of total loans outstanding – in July.

However, they have remained at significantly lower levels than at the height of the COVID-19 crisis in mid-2020, when they peaked at around 10 per cent of total lending.

While the previous COVID-19 repayment deferral period expired in March (with some lenders ceasing acceptance of new deferral applications), banks began offering temporary financial assistance again for borrowers affected by the COVID-19 crisis and the latest round of lockdown restrictions.

In August, APRA extended regulatory relief for COVID-related loan deferrals, and released the final version of its prudential standard outlining regulatory support for loans impacted by COVID-19, which includes a temporary prudential treatment for loan deferrals.

It said that banks with total loans subject to deferral above a minimum threshold of $50 million and 50 facilities will also need to report data on the loans, under Reporting Form ARF 932.2 COVID-19 Repayment Deferrals.

Furthermore, under the regulatory relief, banks will not need to treat a repayment deferral as a period of arrears or loan restructuring, whether or not the borrower has previously been granted a repayment deferral.

Deferrals highest in NSW

APRA data showed that housing loans comprised the majority of deferrals and have a higher incidence of deferral, with 0.7 per cent of these loans subject to deferral ($10.8 billion), compared with 0.3 per cent of small-to-medium enterprise (SME) loans ($765 million).

NSW had the highest proportion of deferred loans at 1.4 per cent (which is unsurprising given the extended lockdown and restrictions on business operations), compared with the rest of the country at 0.3 per cent. However, this difference tightened in August, APRA said.

The prudential regulator has also compared deferred loans to total loans across three cohorts (loan-to-value ratio [LVR] of greater than 90 per cent, investor loans, and interest-only loans), to provide an indicator of potential elevated risk in deferred loans.

Deferred investor housing loans comprised 34 per cent of total housing loans, while interest-only loans comprised 14 per cent and LVR of greater than 90 per cent comprised 7 per cent.

Out of total housing loans, investor loans comprised 36 per cent, interest-only loans comprised 14 per cent, and LVR of greater than 90 per cent comprised 5 per cent.

As at August 31, housing loan deferrals in NSW made up 1.4 per cent of total housing loans, up from 0.7 per cent as at 31 July.

The proportion of deferrals also increased in Victoria (up from 0.2 per cent to 0.4 per cent), the ACT (up from 0.03 per cent to 0.36 per cent), Queensland (up from 0.04 per cent to 0.23 per cent), and South Australia (up from 0.17 per cent to 0.23 per cent).

Marginal increases were recorded in the Northern Territory (up from 0.06 per cent to 0.15 per cent), Tasmania (up from 0.03 per cent to 0.06 per cent), and Western Australia (0.02 per cent to 0.05 per cent).

SME loan deferrals as a share of all SME loans also increased in NSW (up from 0.16 per cent to 0.65 per cent), Victoria (0.02 per cent to 0.16 per cent), Tasmania (0.01 per cent to 0.08 per cent) and South Australia (0.01 per cent to 0.05 per cent).

While there were no SME loan deferrals in July in Queensland, the Northern Territory and Western Australia, deferrals increased to 0.07 per cent, 0.06 per cent, and 0.02 per cent of total SME loans respectively in August.

Proportion of ADI investor loan deferrals high

Data submitted by ADIs with over $50 million in loan deferrals has revealed that the share of investment loan deferrals out of total housing deferrals is significantly higher than the other two key cohorts.

For example, while Macquarie Bank reported that while housing loan deferrals comprised 0.5 per cent of total housing loans, investor loan deferrals made up 45.1 per cent of total housing deferrals, while interest-only loans comprised 24.3 per cent.

Across the major banks, Westpac reported that investor loan deferrals comprised 38.3 per cent of total housing deferrals, while interest-only loans comprised 14.2 per cent, and LVR greater than 90 per cent comprised 5.3 per cent.

The Commonwealth Bank of Australia (CBA) reported the highest proportion of total housing loans in deferral as a share of total housing loans out of the ADIs that provided data to APRA (0.9 per cent).

Investment loan deferrals comprised 31.8 per cent of total housing deferrals, while interest-only comprised 15.9 per cent and LVR greater than 90 per cent comprised 10.7 per cent.

At National Australia Bank (NAB), 0.6 per cent of housing loans were in deferral in August, with investment loans comprising 34.4 per cent of deferred loans, while interest-only loans comprised 7.7 per cent and LVR of greater than 90 per cent comprised 4.6 per cent.

[Related: RBA rings alarm on high debt levels]

Malavika Santhebennur is the features editor on the mortgages titles at Momentum Media.

Before joining the team in 2019, Malavika held roles with Money Management and Benchmark Media. She has been writing about financial services for the past six years.