Banks, regulators ramp up talks on $236bn loan deferrals

Nearly 800,000 loans with repayment deferrals come to an end in September and October

It’s the $236bn question that banks, regulators and the federal government are grappling with, as they look to avoid a cliff-like financial scenario in the months before Christmas.

That’s the dollar tally for 779,458 loans with repayment deferrals that come to an end in September and October, and banks and regulators are getting to the pointy end of negotiations on how to ensure it doesn’t become a dire situation.

This column understands deliberations over the capital treatment of deferred loans ramped up this week. The issue was top of mind as the Australian Prudential Regulation Authority and the corporate regulator attended an Australian Banking Association council meeting on Monday. Another meeting of key stakeholders will occur within 10 days.

The issue is that the loan repayment pauses — across businesses and home loan borrowers — roll off around the same time as government stimulus measures such as the JobKeeper program. Several of the major banks have already offered customers the ability to shift to interest-only repayments, or potentially a further deferral, if they are unable to restart their debt servicing.

But it’s how those loans are treated, and how much capital is held against them, that is key.

APRA in March said banks didn’t need to report loans in a repayment pause as being restructured or in a period of arrears for the six-month deferral period. It’s the ensuing months that are now in question.

That comes as pressure separately mounts on the government to overhaul its small business coronavirus scheme, that provides loans 50 per cent guaranteed by the government, over a period of three years. The $40bn program has been a flop, with just $1.6bn of the business loans approved.

The Customer Owned Banking Association is the latest industry group to push the case for the program’s parameters to be changed, saying the short time-frame is inhibiting take up of the product. The scheme allows businesses not to make payments for the first six months, meaning the entire debt of up to $250,000 needs to be repaid in 2½ years.

COBA recently had discussions with APRA, the corporate regulator and the Reserve Bank on the topic of extending the term of the loans under the program.

Other banks are pushing for the government to broaden the potential uses of the loan, beyond specific fixed business costs.

When asked by this column about the potential for the scheme to be refined, Treasurer Josh Frydenberg said: “As we move into the recovery phase, the government will continue to evaluate the measures needed to help businesses and individuals successfully adapt to the new COVID-safe economy.”

One thing is clear. The banking sector is walking a tightrope as the COVID-19 turbulence continues.

Delving deep

One of Westpac’s go-to headhunters Heidrick & Struggles is on deck scouring local and international markets for a new head of its institutional bank.

That follows the retirement of Lyn Cobley from the bank, announced in May, which marked the third executive departure from Westpac’s front bench in as many weeks.

Westpac’s group treasurer Curt Zuber is leading the institutional unit on an acting basis from this month.

Heidrick & Struggles also conducted Westpac’s chief executive search following the departure of Brian Hartzer in November. But that process was shelved earlier this year when COVID-19 took hold, and the bank in April appointed Peter King to the top job.

Slow lane

AMP’s cultural transformation certainly has a long way to go, particularly given this week’s events.

The wealth group last month promoted Boe Pahari to lead AMP Capital — who was shown this week in media reports to have a black mark against him for sexual harassment — and also continues to drag out the customer compensation process.

Neither bode well for AMP, which has said it wants to be customer-centric and up-end the culture that got it in hot water at the Hayne royal commission.

Despite quiet assurances from AMP, and years of battling, aggrieved customer and former Sydney Children’s Hospital Foundation boss Adam Check is yet to see any resolution to his case. AMP sources had suggested the matter would be resolved by the end of June.

AMP chief Francesco De Ferrari told this column he understood the case was “really close to being finalised” but admitted the process had taken too long.

“It’s very disappointing that it takes us a very long time to be able to get to the bottom of some of these complaints,” he said. “Some of them are very complex but it should not take us that long and we are determined to fix that.”

De Ferrari highlighted AMP had paid out smaller amounts of remediation to impacted customers, without an investigation.

Check’s case highlighted a litany of errors by AMP and his now banned financial adviser.

“I see little to no cultural change from the atrocities of the past to the (AMP) dealings of the present,” Check said.

“It’s five years since AMP first wrote to me saying my advice was fine when it was recorded by them as ‘inappropriate’.”

Check has now provided the corporate regulator with a cache of documents.

On Tuesday, while appearing in front of parliamentary committee, De Ferrari conceded AMP had so far paid out less than a third of the $778m set aside to compensate customers. That remediation largely reflects poor conduct or overcharging by adviser businesses under AMP’s licence.