Coronavirus: $1bn hit a week to economy, and banks to help loans

Australia’s major banks will extend loan repayment relief as Victoria’s COVID-19 outbreak delays the economic recovery.

Treasurer Josh Frydenberg has pledged to provide Victoria with ’all the support necessary’, saying the new lockdown measures could cost the economy up to $1bn a week. Picture: AAP

Australia’s major banks will extend loan repayment relief for hundreds of thousands of families and small businesses, as Victoria’s COVID-19 outbreak delays the economic recovery and forces a reassessment of the JobKeeper and JobSeeker welfare programs.

With the Reserve Bank warning that the pandemic could hit consumer confidence and investment, Josh Frydenberg pledged to provide Victoria with “all the support necessary”, saying the new lockdown measures could cost the economy up to $1bn a week.

The Australian understands about half of the 800,000 customers who deferred repayments on loans worth more than $260bn in total were expected to begin paying off their debt by September as states and territories continue to ease restrictions.

The extra relief from the banks will provide an additional four-month deferral on loans for distressed customers and help ease them back to repayments.

The Treasurer, who will deliver a budget update on July 23, said the coronavirus outbreak in Victoria, which accounts for one-quarter of the nation’s GDP, was at a “critical point”.

“We have injected over $10bn to the Victorian economy from the JobKeeper program and cash flow boost over the last three months,” Mr Frydenberg said. “With Victoria comprising around a quarter of the Australian economy, what happens in Victoria matters to the rest of the nation and will impact on the speed and trajectory of our economic recovery.”

Following the central bank’s decision on Tuesday to hold rates at a record low 0.25 per cent, governor Philip Lowe said “the ­nat­ure and speed of the economic recovery remains highly uncertain”.

“Uncertainty about the health situation and the future strength of the economy is making many households and businesses ­cautious, and this is affecting consumption and investment plans,” Dr Lowe said.

“The pandemic is also prompting many firms to reconsider their business models. As some businesses rehire workers as demand returns, others are restructuring their operations.”

Dr Lowe said the Australian economy was experiencing “the biggest contraction since the 1930s” and the RBA was committed to “do what it can to support jobs, incomes and businesses” to underpin the recovery.

Australian Banking Association chief executive Anna Bligh said the new customer support package would be “specifically targeted to getting people back on repayments while continuing to help those hardest hit”.

She said the new measures, including extending the length of loans, converting loans to interest only for a time and consolidating debt, would help customers “avoid a cliff in September”.

“This new phase of support turns a cliff into manageable steps for Australians to get back on track and repaying their home loans and business loans,” Ms Bligh said. “Customers with reduced incomes and ongoing fin­ancial difficulty due to COVID-19 will be contacted as they approach the end of their six-month deferral period, to ensure that wherever possible they can return to repayments through a restructure or variation to their loan.”

Ms Bligh said if arrangements could not be put in place by September, customers “will be eligible for an extension of their deferral of up to four months”.

Mr Frydenberg said the banking support package had been endorsed by the Australian Pru­dential Regulation Authority, which would “provide the banks with extended regulatory relief”.

“APRA has also provided relief to encourage the banks to restructure loans where possible as a way of helping these customers. This restructuring could include extending the term of the loan or moving from principal and interest repayments to interest-only for a period of time,” he said.

Victorian Premier Daniel Andrews, who spoke with Scott Morrison on Tuesday afternoon, said given the “hardship” Victorians would face in the coming weeks, the commonwealth would need to consider extending welfare support payments.

“I’m very confident the Prime Minister knows and understands that there will be different forms of hardship in different parts of the country, different industries, different sectors,” Mr Andrews said. “Whatever those new or different policy settings are, I think he’s going to be guided by that hardship, just as we are.”

On Tuesday night, Education Minister Dan Tehan said childcare support, due to end across the country on Sunday, would be extended to families living in Melbourne lockdown suburbs through a waiving of parent gap fees if children were kept at home.

Business Council of Australia chief executive Jennifer Westacott called the Melbourne shutdown a “national setback which will be devastating for Victoria and all Australians”.

“It’s good to see restrictions have not exceeded the original lockdown measures but the challenge will be finding a better way of managing outbreaks because businesses cannot operate on a stop-start basis which will sap confidence and cost jobs.”

The Australian can reveal that national cabinet on Friday will consider tougher quarantine rules to shield other states and territories from fresh outbreaks.

The national cabinet, which will receive updated health modelling from the Australian Health Protection Principal Committee, will discuss beefing-up hotel quarantine measures in a bid to avoid new virus spreads in capital cities.

National cabinet leaders are also expected to discuss which states will continue accepting international passenger flights.