|End-of-day quote - 07/03|
APRA Preparing for Potential Fallout When Government Relief Measures End
|05/28/2020 | 01:14 am|
By Alice Uribe
SYDNEY--Australia's prudential regulator said the strength of bank balance sheets was a big issue on its agenda, as it prepares for potential fallout from the end of the government unemployment support in September and the conclusion of loan moratoriums.
Australian Prudential Regulation Authority Chairman Wayne Byres said Thursday that while the banking sector, along with regulators and government, had put in a holding strategy to provide "six months of breathing space," risks still remained.
"We can't keep pretending that everything is in good shape if there are customers who are clearly not going to be able to repay their loans," Mr. Byres told the Senate Select Committee on Covid-19.
"There are often references to 'the clip' when everything ends in six months' time," he added. "No one has an interest in coming off 'the clip,' so we have to work out what the next phase is going to be and that will be dependent on the economic situation at the time."
Australia & New Zealand Banking Group Ltd. has already signaled more assistance could be needed. ANZ Chief Executive Shayne Elliott said late last month that a reasonable number of home-loan customers who have deferred more than 104,000 mortgage accounts during the pandemic would need help beyond October.
"Some will require further assistance, perhaps an extension of the deferral, perhaps partial repayments...perhaps even some sort of hardship or a lower rate," Mr. Elliott said.
Bendigo and Adelaide Bank Ltd on Thursday said it had set aside 148.3 million Australian dollars (US$98.2 million) for possible future impacts of the coronavirus pandemic.
Lenders including Westpac Banking Corp. said provisions for expected credit losses include A$1.6 billion set aside for the coronavirus impact. National Australia Bank Ltd. has made an A$807 million provision, while Australia & New Zealand Banking Group Ltd. is estimating A$1 billion of credit losses tied to Covid-19.
Mr. Byres said there were almost A$250 billion in deferred loans, two-thirds of which were mortgages, but noted that the regulator did not want to "put pressure on a large group of customers just at the wrong point in the cycle."
He said there were system dangers whether the loan deferral scheme ended or not.
"Bank balance sheets are highly correlated to the economic environment. The risks are definitely there because clearly we are in a very difficult economic environment. Banks are really just the arteries by which the economies operate," Mr. Byres said.
"So when the economic environment is difficult, bank balance sheets are under pressure, there is no doubt that risk in the financial system is rising, there is no doubt about that, and we need to work carefully over the longer term, to make sure the system stays safe and stable."
Write to Alice Uribe at email@example.com
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