Hardship approvals decline by 63% since August: ABA

Fewer Australians are now requiring hardship assistance and loan deferrals than they were in August, according to an analysis published by the Australian Banking Association (ABA) last week (29 October). 

Reviewing data from three of Australia’s major banks as well as Bendigo Bank, ABA’s analysis suggests that between 8 August and 3 October, hardship approvals steadily declined, dropping from 16,062 to 5,942. 

This drop accounts for a reduction of 63 per cent. 

Deferred home loans have followed a similar trend over this same period, plunging by roughly 86 per cent from 9,008 to 1,306. 

The number of deferred small business loans has shrunk, with the 926 recorded on 8 August shrinking to 242 on 3 October – a drop of 74 per cent. 

Between 8 July and 3 October, 69,000 borrowers received hardship assistance, including over 27,000 home loan deferrals and more than 4,000 business loan deferrals.

According to the ABA, there was an increase of 12,000 hardship approvals since September, “the smallest increase since the banking industry announced a second COVID-19 package of assistance in July this year”. 

The vast majority of these were located in Victoria and NSW – the two states that faced the greatest lockdown restrictions related to COVID-19 - accounting for a combined 75 per cent of all hardship approvals as well as roughly 90 per cent of both deferred business loans and deferred home loans. 

Speaking of the analysis, ABA chief executive Anna Bligh said: “Banks have been on-hand to assist their customers throughout the pandemic, however it’s heartening to see the need for assistance declining as many states and territories come out of lockdown and as borders begin to open.

“The majority of hardship approvals came from customers in NSW and Victoria, which is obviously no surprise given the recent lockdowns, however we did see thousands of customers across the rest of Australia seek support and talk to their bank.”

The data follows a report by Moody’s earlier this month that speculates mortgage delinquency rates will increase over the rest of the year. 

In September, S&P reported that delinquency rates were at a rate better than was initially expected. 

In August, Commonwealth Bank of Australia CEO Matt Comyn said, at the time, that loan deferrals were decreasing for the bank. 

ABA introduces new ‘Financial Difficulty Guideline’ 

In addition to the data of decreasing deferrals, the industry body has also introduced a new guideline to all ABA member banks intended to promote positive practice across the industry. 

Said by the ABA to be a “guidance for banks’ programs that are aimed at supporting customers in financial difficulty”, this new framework includes a “safety buffer” – enabling a customer on a payment plan to have small amount of funds set aside by the bank for “unexpected expenses or emergency bills”. 

According to the industry body, some banks have already begun to implement practices associated with this new guideline, while others are expected to introduce them over the next 12 months. By the end of 2023, all banks will “consider providing the option of a savings buffer to customers when calculating financial hardship repayment plans”. 

As confirmed by the ABA to Mortgage Business, the initiative is technically available for those under a payment plan for a mortgage loan. However, the decision is at the discretion of each bank. 

Earlier this year, Westpac announced that it would be introducing a savings buffer for home loan customers under hardship arrangements. 

“The practices in this updated guidance demonstrate the commitment banks have to their customers experiencing financial difficulty and define the practical assistance banks can provide a customer who is unable to repay their debts,” said Ms Bligh.

[Related: Home loan delinquencies to creep up: Moody’s]