Coronavirus: value of loans on hold falls by $150bn

The value of loans deferred through the pandemic has plunged by $150bn since the peak of the COVID-19 crisis.

Commonwealth Bank head of Australian economics Gareth Aird.

The value of loans deferred through the pandemic has plunged by $150bn since the peak of the COVID-19 crisis, with a stronger than expected recovery easing fears Australia faces a wave of defaults once borrowers’ come to the end of their six-month ­repayment holidays.

The Weekend Australian has obtained Morgan Stanley analysis of the major lenders’ latest round of reporting, showing the value of loans deferred fell by two thirds — from $225bn to $75bn — between the middle of the year and the start of November.

On Friday, CBA announced a major upgrade to its economic outlook, saying unemployment had effectively peaked at around 7 per cent and the bounce back from the recession would be much faster than expected given a slew of upbeat economic indicators and Australia’s success in suppressing the virus.

“I think things are only going to get better, rather than worse,” CBA head of Australian economics Gareth Aird said.

He added that the economy was on track to regain its pre-COVID size by September next year, although the jobless rate would remain relatively elevated until the end of 2022.

Against this improving backdrop, the Morgan Stanley figures showed mortgage and business borrowers were restarting repayments at an accelerating pace.

Australian Banking Association data from mid-October showed a 45 per cent drop in deferred loans for home and business borrowers. The latest figures showed business loan repayment relief extended by the four major lenders has dropped by more than 80 per cent since the deferral peaks of June, from $53bn to $10bn. Deferred mortgages are down 62 per cent, from $172bn to $65bn. This week, CBA boss Matt Comyn said he was “encouraged” by the ability of borrowers to ­restart repayments.

The Reserve Bank of Australia at its Melbourne Cup day meeting cut rates to 0.1 per cent and ­announced a major bond-buying program, which has pushed fixed-term mortgage rates below 2 per cent, providing further relief to borrowers.

Mr Aird said the stream of positive economic indicators, including a seven-year high in consumer confidence, had sparked a rethink about the pace of recovery. Consumer optimism, alongside evidence of a turnaround in the housing market and a sharp lift in business confidence, underpinned the bank’s more optimistic view, he said.

CBA has estimated the official unemployment rate will drop from 6.9 per cent to 6.6 per cent by the end of this year — well below Treasury and Reserve Bank forecasts of an 8 per cent peak. The jobless measure would then slide to 6.4 per cent by March and 5.9 per cent by the middle of next year. Mr Aird said he expected the unemployment rate to be at 5.4 per cent by the end of 2022.

Economic activity in the second half of the year will be much more robust than expected, with GDP expanding by 2 per cent in the September quarter and by 2.1 per cent over the final three months of 2020. Annual GDP in 2021 and 2022 will grow at an above-trend rate of 4.2 per cent and 3.8 per cent, respectively.