The banking sector is at peak loan deferrals, with three-month customer check-ins about to bring the rate down, pointing towards recovery.

“We have started doing check-ins with thousands of customers to see what their current situation is, how theyre going and what more we need to do to help,” he said.
“About 10 to 15 per cent of these customers have asked to be put back on to their normal payment schedule.
One of the worst things we could do right now is give more money to customers who couldnt repay it. We are having great conversations with customers and we are documenting those to make sure they are capable of repaying it. Its basic banking 101.”
Westpac said 4000 of the 120,000 mortgage customers who paused repayments had already restarted them.
Data released by the Australian Banking Association last week showed 762,766 loans across the banks had been granted repayment holidays, including 476,728 mortgages and 214,383 business loans. The total value of the deferred loans was $232 billion.
ANZ Bank’s Mark Hand: “There are still so many unknowns about what will happen next.” Paul Jeffers
The numbers – which represent around 9 per cent of all mortgages and 6 per cent of all business loans – have been rising each week, but at a diminishing rate.
The total number of deferred loans reported at the end of last week was up 2.4 per cent on the previous week; a similar increase this week would take them to just over 780,000.
ANZ’s group executive for retail and commercial banking, Mark Hand, said while more small businesses could seek loan deferrals over the coming months, these would likely be offset by mortgage customers getting back on track.
Five per cent of ANZ customers who took a loan deferral are back making full repayments.
Yet Mr Hand cautioned there was still a lot of uncertainty about the trajectory of the economic recovery.
“There are still so many unknowns about what will happen next. We will need to wait to see what other government support mechanisms are coming down the pipeline,” he said.
While a loan deferral peak would be symbolic of an economy in recovery mode, for the banks, triaging loans during the next phase of the crisis could be even more intense than the past few months.
While initial decisions to grant loan deferrals were typically made on the spot, reducing deferral numbers will be time-consuming because it will involve a case-by-case assessment of customer positions, including the outlook for income and employment as the economy recovers, which will be different for people working in different sectors and geographies.
The logistics of getting loan books back on track present banks with a “formidable challenge,” said Evans & Partners banking analyst Matthew Wilson.
Given the numbers, “the sheer logistical challenge is staggering”.
Banking sources said it was possible the ABA data overestimated the total number of loans not being repaid, because a significant minority – perhaps as high as 20 per cent – of customers who were granted deferrals when they first contacted their bank didn’t stop making payments after all. Some didn’t end up losing their jobs or their businesses didn’t receive as big a hit as was feared.
APRA is seeking to understand how many of the total deferred loans are likely to get back on track relatively quickly and how many will take longer.
To help inform APRA’s looming decision on extending leniency – which banks hope will be made in July – banks have been requested to provide the regulator with detailed analysis on deferred loans by the end of the month.
APRA has requested information on the proportion of deferred loans where customers are making some repayments, and the level of such repayments; how much customer income levels have fallen during the crisis; how many deferred loans have been shifted to interest-only repayments; and detail on geographical pressure points and sectors where business borrowers are struggling.
Treasury has made similar data requests of the banks.
Banking sources said APRA had been supportive of the banks as they entered the crisis, and they hope the regulator will show ongoing support as the banks attempt to extract themselves and their customers from it.
“Our thinking is around forbearance, not foreclosure,” said one banker.
APRA said on March 23 – three days after the six-month loan deferrals were announced – that banks did not have to treat repayment holidays as a period of “arrears”, which would have triggered additional requirements to hold regulatory capital against loans.
Banks are now keen to know – before they strike deals with any customers needing extensions – whether APRA is willing to continue this treatment beyond September.
Some banking analysts are pressuring the banks to move deferred loans into impaired assets buckets, so they can get more certainty on when dividend repayments can be restarted.
“The banks, urged on by APRA, are expected to actively seek to get these borrowers to recommence loan repayments,” Citi’s Brendan Sproules told clients last week.
“We expect further deferments will only be available in strict circumstances.
“A ‘rip the Band-Aid off approach by the banks is set to accelerate mortgage impairments, bringing housing losses to fruition.
“However, an outcome of managing balance sheet risk will be in providing a pathway to dividends being reinstated.”
Bankers suggest they are not seeking to approach the triage process for struggling customers in an aggressive fashion.
While conversations around business loans may need to be more frank, when it comes to mortgages the banks understand that keeping as many people as possible in their homes will be needed to avoid a rout of the housing market.
“What makes this very challenging is the circumstances of customers is so variable,” a big four banker said.