Treasurer Josh Frydenberg and major banks to plot recovery

Josh Frydenberg will attend a full council meeting of the Australian Banking Association in Canberra on Wednesday, as the focus shifts from pandemic to recovery.

Australian Banking Association (ABA) CEO Anna Bligh. Picture: AAP Image

An accelerating economic recovery has continued drive down the number of loans put on hold during Covid, as bank chief executives prepare to discuss the nation’s pandemic recovery plan with Josh Frydenberg on Wednesday.

However banks are cautioning of pressure points looming for some borrowers as lending assistance measures come off at the same time the JobKeeper scheme comes to an end at the end of the month.

As revealed on Tuesday in The Australian online, the full council of the Australian Banking Association, including the bosses of the four major banks, is set to convene in Canberra.

The Treasurer will join the 15 bank CEOs for dinner, with Opposition Treasury spokesman Jim Chalmers the ABA’s guest at a lunch earlier in the say.

Heading the agenda is the recovery phase of the pandemic, including measures to be put into place for customers still experiencing financial difficulty, as well as cybersecurity and anti-money laundering priorities.

Ahead of the council meeting – the first to be held in Canberra – the ABA released new data showing the number of housing and business loans deferred by the major banks continued to decline in February.

Borrowers have now resumed repayments on 96.5 per cent of deferred loans, with only 1.2 per cent of small business loans remaining frozen and 5 per cent of housing loans.

At the end of January, 91 per cent of deferred loans had resumed repayments, with 5 per cent of small business loans and 13 per cent of housing loans still frozen.

At the height of last year’s Covid pandemic nearly one in 10 Australian mortgage holders had asked their bank to deferred the payments on those mortgages with billions of dollars in loans at risk.

ANZ Bank sign in Sydney. Picture: NCA NewsWire/Gaye Gerard

The latest data from the Big Four also showed only 0.2 per cent of the sector’s small business loans, 0.5 per cent of housing loans, and 0.2 per cent of all loan facilities were still deferred.

ABA chief executive Anna Bligh said the figures showed that the vast majority of borrowers were now back on their feet.

“But for many people the crisis is not over, so the relationship with their banks is just as important in the economic recovery as in the crisis response,” Ms Bligh told The Australian.

“People want to see the current bipartisan approach continue.”

A massive level of fiscal and monetary stimulus over the last year has kept the economy afloat and enabled borrowers to resume repayments on their loans.

However, the expiry of the $90bn JobKeeper program at the end of March is looming as a significant test, albeit softened by the Morrison Government starting to roll out more targeted assistance for hard-hit sectors such as hospitality and international tourism.

Mr Frydenberg defended the removal of JobKeeper, which supports about 1.3m workers.

He predicted a “bumpy” ride, but said the program was the most expensive ever undertaken by an Australian government and was never intended to be permanent.

Further, unemployment had now fallen to 6.4 per cent compared to initial Treasury forecasts in the early stages of the pandemic that it could blow out to 15 per cent.

“So even though JobKeeper comes to an end, there are other support measures that are in place,” the Treasurer told ABC Radio.

“JobKeeper was always a temporary emergency payment - we initially scheduled it for six months and extended it to a full twelve months.

“Treasury’s advice to me is that if you leave it in place, it actually starts to have an unintended consequence across the economy in the efficient allocation of workers.”

Minutes from the Reserve Bank board meeting in March said the economy was now only 0.5 per cent below its pre-pandemic level, with board members playing down the likelihood of large-scale job losses from JobKeeper’s withdrawal.

This was because the number of people working zero hours had declined significantly in recent months to be close to pre-pandemic levels.

Westpac bank in Sydney, NSW. Picture: Dylan Coker

Also, some JobKeeper recipients, including the self-employed, were more likely to suffer a decline in income than lose their jobs at the end of the program.

Forward-looking job indicators of labour demand, such as job advertisements, suggested that the ongoing recovery in the jobs market could be “broadly sufficient” to offset the job losses arising from the end of the JobKeeper program.

As to the risk-level in asset markets like housing from ultra-low interest rates, the RBA board said it acknowledged investors were hunting for yield.

“Members noted that lending standards remained sound and that it was important that they remain so in an environment of rising housing prices and low interest rates,” the minutes said.

“The board concluded that there were greater benefits for financial stability from a stronger economy, while acknowledging the importance of closely monitoring risks in asset markets.”

UBS economist George Tharenou repeated his warning of the likely reintroduction of macroprudential measures later in the year to curb the boom in house prices and address any deterioration in lending standards.

A year on from the first COVID-19 lockdowns, Ms Bligh stressed that the quarterly ABA council meeting was a chance for the bank CEOs to meet Mr Frydenberg and Mr Chalmers, discuss the outlook for 2021 and the role banks could play in building the economic recovery.

“It’s an opportunity to ensure that all banks are pulling in the same direction in the interests of their customers and the Australian economy”, she said.