Loan deferrals continue to rise

The Australian Prudential Regulation Authority (APRA) has released new data on temporary loan repayment deferrals for September 2021, which revealed that a total of $13.1 billion worth of loans were on temporary repayment deferrals (0.6 per cent of total loans outstanding).

The data was submitted by authorised deposit-taking institutions (ADI) with over $50 million in loans subject to repayment deferral and 50 facilities in this “second round” of the deferral period, compared to $20 million and 20 facilities in the “first round” in 2020-21.

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

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.

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.

The latest figures showed that deferrals increased in September 2021, compared to August when $11.9 billion worth of loans were in deferral (0.5 per cent of total loans outstanding).

While deferrals have increased, it has remained at significantly lower levels than at the peak of the coronavirus pandemic crisis in mid-2020, when deferrals peaked at around 10.0 per cent of total lending.

Housing loans comprised the majority of total loans on deferrals, and have a higher incidence of deferral, with 0.5 per cent subject to deferral ($11.5 billion), compared with 0.5 per cent of small-to-medium enterprise (SME) loans ($1.2 billion).

NSW had the highest proportion of housing loans subject to deferral, at 1.35 per cent, but this was down from 1.39 per cent in August.

The proportion of deferred loans were also down in South Australia (from 0.23 per cent to 0.18 per cent) compared to August.

However, they increased in Victoria (up from 0.43 per cent to 0.62 per cent), the ACT (up from 0.36 per cent to 0.45 per cent), Queensland (up from 0.23 per cent to 0.24 per cent), the Northern Territory (up from 0.15 per cent to 0.18 per cent), Tasmania (up from 0.06 per cent to 0.08 per cent), and Western Australia (up from 0.05 per cent to 0.06 per cent).

NSW also had the highest proportion of SME loans in deferral at 0.87 per cent, but down from 0.65 per cent in August.

However, the proportion of SME loan deferrals increased in every other state and territory between August and September, according to APRA data.

Out of the deferred housing loans, 8.0 per cent had a loan-to-value ratio (LVR) of over 90 per cent, while 13.0 per cent of the loans were interest only and 35 per cent were investor loans.

Across the lenders, investment loans continued to make up a higher proportion of deferred housing loans in September, although this has reduced slightly compared to August.

For example, Macquarie Bank had the highest proportion of deferred investment loans as a share of housing deferrals at 41.0 per cent but this was down from 45.1 per cent in August.

Interest-only loans in deferral were also down, from 24.3 per cent in August to 19.2 per cent in September.

However, Westpac’s investment loans in deferral as a share of housing deferrals rose from 38.3 per cent in August to 39.2 per cent in September, while interest-only loans increased marginally from 14.2 per cent to 14.3 per cent, while loans with an LVR greater than 90 per cent increased from 5.3 per cent to 5.6 per cent.

Both Westpac and 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).

CBA’s investment loan deferrals as a share of housing deferrals remained steady in September (decreasing slightly from 31.8 per cent to 31.1 per cent), while interest-only loans decreased from 15.9 per cent to 14.7 per cent. However, loans with a high LVR of greater than 90 per cent was up from 10.7 per cent to 11.6 per cent.

National Australia Bank (NAB) reported a slight increase in the proportion of investment loans in deferral as a share of housing deferrals (up from 34.4 per cent in August to 34.9 per cent), but interest-only loans in deferrals were down from 7.7 per cent in August to 5.8 per cent in September.

Loans with an LVR of greater than 90 per cent that were in deferral were up from 4.6 per cent to 4.7 per cent.

NAB reported that 0.6 per cent of its housing loans were in deferral as a share of total housing loans.

Recent Australian Banking Association (ABA) figures revealed that fewer borrowers are now requiring financial assistance to meet their loan repayments, with hardship approvals steadily declining from 16,062 to 5,942 between 8 August and 3 October.

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

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.