Australian banks loan deferrals shrink in July, task still 'immense'

[SYDNEY] The balance of Australian loans on payment "holidays" due to the coronavirus pandemic fell 12 per cent to A$240 billion (S$238.1 billion) in July, official data showed on Thursday, as lenders start asking customers to resume paying down the loans.

It is the first time the balance of home and business loans on holidays have shrunk since it was introduced in March, with about 9 per cent of all housing loans and 17 per cent of all business loans still in deferral.

The nation's largest bank, Commonwealth Bank (CBA), and third-biggest, National Australia Bank (NAB), hold about half the loan forbearance balance, the data from the Australian Prudential Regulation Authority shows.

New approvals for deferrals are declining and are now lower than the loans that are being unfrozen, the data showed.

There are concerns, though, that some borrowers will be forced to sell their homes once government support ends.

"The task ahead for the banks is immense," Merrill Lynch analyst James Ellis said. "Deferred balances need to be processed quickly, and banks need to make careful judgements as to credits that might warrant foreclosure."

The A$62 billion in loans subject to temporary repayment deferrals at CBA made up 26 per cent of the total on hold, equivalent to 9 per cent of its loans. NAB had A$55 billion deferred, representing about 11 per cent of its loan book.

Bank of Queensland is the lender with the highest proportion of frozen loans of all publicly listed banks, with 18 per cent of its loan book on deferral, the data showed.

REUTERS