CBA to pull back on virus support

The nation’s biggest bank plans to assess new requests for mortgage deferrals on a case-by-case basis rather than offering an automatic deferral for hardship.

Commonwealth Bank will start to quietly wind back its COVID-19 support measures, with the nation’s biggest bank planning to assess new requests for mortgage deferrals on a case-by-case basis rather than offering an automatic deferral for hardship.

It the first of the big four banks to signal a hardening of the financial assistance measures, which were rolled out across the sector in March as the coronavirus pandemic brought the economy to a halt.

CBA’s automatic loan deferrals for up to six months will stop at the end of June, with customers facing ongoing hardship having to contact the bank for “alternative” support.

The tapering applies to home loans, personal loans and credit card products.

As of Friday more than $236bn worth of business and housing loans had been deferred across the nation’s banking sector. Repayments on some 762,000 mortgages and 214,000 business loans have been delayed for six months for customers facing hardship as a result of the COVID-19 lockdown.

But as the economy starts to reopen banks are starting to reconsider the extraordinary support program in an effort to protect their balance sheets.

 

CBA said about 169,000 retail banking customers had applied for automatic deferrals since the measure was implemented in March.

However, the number of home loan deferral requests had on average decreased by 32 per cent each week since the peak in March. Personal loan repayments deferral requests have fallen by 30 per cent.

“As Australia enters the next phase of the coronavirus pandemic, customers still seeking assistance are increasingly re­quiring solutions that can only be delivered through more individualised support,” CBA said in a note to customers late Friday.

The Weekend Australian understands that CBA is continuing to offer automatic COVID-19 support measures for ­business loan customers hit by the pandemic.

CBA’s phasing down of large-scale support comes after regulators urged the banking sector to increase lending to help pull the economy out of a recession.

Even so, Australian Prudential Regulation Authority chairman Wayne Byres last month warned that some customers may never be able to repay their loans.

He also cautioned of the long-term impact on the economy from the COVID-19 crisis.

“The idea that we’ll employ some temporary measures and then everything will ‘go back to normal’ is therefore a dangerously naive one on which to base our decisions,” Mr Byres said.

Separately, Reserve Bank governor Philip Lowe last week urged the federal government to consider extending the $70bn JobKeeper program beyond the September 30 deadline.

“Ending that fiscal support prematurely could be damaging,” Dr Lowe said.

Dr Lowe has previously commented that the country’s major banks should be increasing lending to customers, in an attempt to help the economy recover.

CBA said ongoing support measures would include switching mortgages to interest-only repayments and reducing payments to the minimum.

The bank also said home loan customers could access additional funds through redraw facilities or dip into their offset accounts.

RateCity research director Sally Tindall told The Weekend Australian that loan deferrals still accrued interest and over the life of the loan would cost customers more.

“Deferring a home loan for up to six months is not something people should enter into lightly,” Ms Tindall said.

“It can add thousands of dollars to your interest bill over the life of a loan and should be considered as a last resort.”

During the shutdown, Westpac was the only bank to implement an interest rate freeze on personal loans and credit cards, for up to three months.

Ms Tindall expressed concern that the banking sector has not discussed what happens after six months, if a customer can still not meet their repayments.

It is understood that CBA customers requesting loan deferrals after June 30 due to COVID-19 will not have their credit rating impacted.

The Australian Banking Association on April 6 flagged that any Australian granted a repayment deferral for up to six months would see their credit rating affected. “If a customer is granted a deferral on their mortgage and other credit products because of COVID-19, banks will report customers as not having missed a repayment, provided they were all up to date when granted relief,” ABA chief executive, Anna Bligh said.