Banks will defer small business loan repayments for six months, freeing up $8 billion to support borrowers through the coronavirus crisis. Banks are also open to considering cases of mortgage hardship if they appear.
Banks are seeing a “rapidly and exponentially increasing volume of calls from small businesses in distress, unable to meet payments,” Australian Banking Association chief executive Anna Bligh said.
In a move designed to keep a lid on unemployment and bankruptcies, banks’ deferral of principal and interest repayments on $100 billion of small business loans “could put as much as $8 billion back into the pockets of small businesses as they battle through these difficult times,” she said.
Banks are also putting in place a fast track approval process so small businesses suffering cash flow pressures receive support as soon as possible, the ABA said. It hopes to start cancelling repayments for stressed borrowers as early as Monday. Banks had previously flagged their willingness to push back repayments on business loans and overdrafts for three months.
The ABA plan does not extend to residential home loan customers – but the ABA said banks would adjust their response as the crisis evolved. Ms Bligh said banks are not currently seeing a high volume of customers in mortgage distress. National Australia Bank and Westpac said on Friday it would extend the six-month loan repayment holiday to its mortgage customers if they were hit by the coronavirus.
The move to provide repayment relief for small business to allow them to keep people in jobs comes after the Reserve Bank announced a $90 billion scheme on Thursday to encourage more lending into the small business sector.
“We realise these are very rapidly moving circumstances, as the government is having to evolve their response, if there is a need that emerges in relation to mortgages, banks will look at what need to be done,” Ms Bligh said, urging any customer concerned about their mortgage to contact their bank.
“There is absolutely no doubt the urgent and critical need, and it is a view shared by banks and government – and we have seen evidence in our call centres – is to help small business as quickly as possible, to keep the doors open, keep people in work – and [banks] we won’t see as many Australians falling into mortgage stress….
“Banks are not reporting a rise in distressed home loan customers but they are reporting a rapid and exponentially increasing number of calls from small business in distress who are unable to meet payment.”
The Australian Competition and Consumer Commission provided urgent interim authorisation on Friday afternon to allow the banks to work together on the assistance package. “Interim authorisation does not mean that individual banks can’t decide to offer more favourable and tailored terms to their small business customers experiencing financial hardship during these times,” ACCC chairman Rod Sims said.
The new package will apply to more than $100 billion of existing small business loans, and it will go to any small business – defined as customers with less than $3 million in total debt owed – struggling as a result of Covid-19.
At the end of the deferral period, businesses will not be required to pay the deferred interest in a lump sum: either the term of the loan will be extended, or the level of loan repayments will be increased, the ACCC said.
The bank chiefs discussed the moves Treasurer Josh Frydenberg and Australian Prudential Regulation Authority chief Wayne Byres late into the night on Thursday following the Reserve Bank’s emergency cash rate cut and creation of a scheme allowing banks to tap the central bank’s balance sheet to get cheap funding for small business loans.
Mr Frydenberg described the ABA’s plan as “a game changer. This unprecedented move by the banks will boost confidence and shows they are playing their role as part of Team Australia,” he said.
Australian Small Business and Family Enterprise Ombudsman Kate Carnell said it was encouraging to the banks take “this proactive approach and leading by example… This is a welcome initiative that will help many struggling small businesses keep their doors open during these extraordinarily challenging times.”
In an after-market briefing on Thursday, Reserve Bank governor Philip Lowe said he was concerned about a rise in unemployment triggered by shutdowns pressuring highly indebted households.
“The vulnerability for households comes if they lose their jobs, which is why we focus on doing what we can for businesses to keep employing people and keeping staff on,” Dr Lowe said.
“If [banks] don’t support people, the unemployment rate will be higher, there will be more stresses, the economy will be weaker, and the banks’ credit losses will be larger.”
Ms Bligh said small businesses are the most vulnerable part of the economy, employing five million Australians and is small businesses “can rest assured that if they need help, they will get it”.
“Banks are already reaching out to their customers to offer assistance and packages will start rolling out in full on Monday.”
She also reinforced the message delivered by Reserve Bank governor Philip Lowe on Thursday that Australia has a strong and stable banking sector well placed to respond to the crisis. “Whether they are large or small banks, Australian banks are as well capitalised as they have been, have balance sheets as strong as they have ever been, and they stand open to lend to businesses who may need that.”
Banks that have agreed to participate in the ABA plan are AMP Bank, ANZ, Bank Australia, Bank of Queensland, Bendigo and Adelaide Bank, CBA , HSBC, Macquarie Bank, NAB, Suncorp Bank and Westpac.
Extracted from AFR