Banks urged to show ‘forbearance’ to customers amid house price fears

Banks have been urged to show leniency towards struggling customers amid fears home foreclosures could spark a confidence-sapping property price plunge.

Almost one million loans to both households and small businesses have been granted repayment holidays during COVID-19, with initial six-month reprieves expiring at the end of this month.

In a joint podcast for the Institute of Public Administration Australia with Treasury Secretary Steven Kennedy, the chief executive of Commonwealth Bank, Matt Comyn, said loan deferrals could not last “indefinitely”.

“It is certainly not indefinitely,” Mr Comyn said, “but the idea would be there is enough flexibility that we have within the financial system and with the regulators to at least provide up to another four months around repayment deferrals going into calendar 2021.”

Commonwealth Bank CEO Matt Comyn says loan deferrals cannot last "indefinitely", but further four month reprieves are available.
Commonwealth Bank CEO Matt Comyn says loan deferrals cannot last “indefinitely”, but further four month reprieves are available.Credit:Dominic Lorrimer

“But we also have to realistically assess every customer at an individual level, and ensure that they will be in a position to restart, and if they are not, then there is no point in just kicking that can down the road.”

Mr Comyn said Victorians accounted for more than 60 per cent of new requests for assistance, “which makes perfect sense”.

Dr Kennedy urged Mr Comyn and other bank chiefs to show “forbearance” amid continued uncertainty about the economic outlook. “I think the banking sector is going to have to think very carefully about that, too, because some sectors may well be viable depending on how the health side of things unfold…Matt will have to be thinking about his customers in Victoria versus other states and how their circumstances unfold.”

Treasury Secretary, Steven Kennedy, has urged banks to show "forbearance" in dealing with COVID-19 affected customers.
Treasury Secretary, Steven Kennedy, has urged banks to show “forbearance” in dealing with COVID-19 affected customers.Credit:Alex Ellinghausen

Dr Kennedy said the banking sector had “done a very good job” so far of contacting customers to restart payments, where possible. However, “for those sectors that remain very badly affected, it is going to have to be a very careful, careful adjustment, and almost some forbearance and a continued watching of circumstances,” he said.

About 10 per cent of Australian loans were subject to deferrals at the end of June, including $195 billion in housing loans and $55 billion in loans to small businesses, according to data from the prudential regulator.

According to the Australian Banking Association, payment deferrals have been granted on 900,000 loans during COVID-19. By the end of July, 13 per cent of these had resumed repayments. Another 100,000 restarted in August, it is estimated, leaving more than 600,000 loans still in limbo.

Mr Comyn said there were no doubt “going to be some very difficult circumstances” but that he was confident a “fiscal cliff” – of sudden loan restarts and withdrawal of support payments – had been avoided.

“I think we have got now an orderly transition, and that avoids a cliff, both at a fiscal level and from a banking perspective.

“Hopefully the majority of customers across the industry will be in a strong enough position to restart their repayments.”

National dwelling prices have fallen each month since May, according to CoreLogic. Prices in Melbourne were down 3.5 per cent over the three months ended August and down 2.1 per cent in Sydney.

Economists such as AMP’s Shane Oliver continue to tip price falls of 10 per cent, although Westpac economists last week predicted a fall of just 5 per cent by the middle of next year, followed by a 15 per cent rebound over the following two years.

Dr Kennedy said falling home prices were something “that we will need to watch carefully” given the potential hit to confidence and perceptions of wealth.

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