APRA backs banks on Covid-19 deferrals and support for small business

Banks offering support to borrowers will not be required to treat ­deferred payments as arrears after APRA backed bank support amid new Covid-19 outbreaks.

Banks are offering support packages to businesses and home loan customers affected by the economic disruption caused by lockdowns. Picture: AFP

Banks offering support to borrowers will not be required to treat ­deferred payments as arrears after the prudential regulator backed bank support amid new Covid-19 outbreaks.

The Australian Prudential Regulatory Authority announced the move on Monday amid lengthening lockdowns in Sydney and Melbourne that have shuttered the nation’s biggest cities.

A number of banks have moved to offer support packages to businesses and home loan customers in the wake of the economic disruption caused by efforts to control the pandemic.

On July 17, the Australian Banking Association said it would roll out a national support package that would offer small business customers with turnover less than $5m and loans less than $3m repayment deferrals.

Merchant terminal fees would also be waived for up to three months, as well as fees and notice periods on cash deposits and farm management deposits.

ABA chief executive Anna Bligh said it was pleasing it see APRA’s regulatory support to help those hit by lockdowns.

“Banks have the financial firepower to help their customers through this period and have offered a range of support measures to small businesses and households,” she said.

“APRA’s actions will further assist banks to provide support to customers all around Australia.

“Australian banks remain strong and stand ready to support Australians and the national economy.”

APRA said it would provide regulatory relief to these authorised deposit taking institutions.

Banks that grant a repayment deferral of up to three months before the end of next month will ­attract the treatment.

However, banks must be confident borrowers were able to repay loans under the original term of the deal.

Loans must also not be already 90 days past due or impaired at the time of repayment deferral.

The regulator said this would be applied “regardless of whether or not the borrower has previously been granted a repayment deferral due to the impact of the pandemic”.

However, APRA will require banks to publicly disclose and report the nature and terms of any repayment deferrals and the volume of home loans to which they are applied.

The banks will also be required to continue to provision for the potential loss of these loans.

The move comes after APRA stepped into the breach in March last year, when the Covid-19 outbreak fully hit in Australia.

At the peak of the loan deferrals in the wake of the initial outbreak, almost one in 10 borrowers had deferred loans.

The temporary relief granted by APRA last year ended in March this year.

APRA said it would release an updated prudential standard this month aimed at formalising the new treatment it announced on Monday.