APRA Extends Regulatory Approach For Covid-19 Loan Deferrals

Source: Regulation Asia Editors, Regulation Asia 2020-07-09

APRA will also allow banks to treat loans restructured by 31 March 2021 as ‘performing’ for capital and regulatory reporting purposes.

APRA (Australian Prudential Regulation Authority) has announced an extension of its temporary capital treatment for bank loans with repayment deferrals, and has temporarily adjusted the capital treatment of restructured loans.

In March, APRA announced that banks allowing borrowers impacted by the Covid-19 pandemic to defer repayments for up to six months need not treat the repayment deferral period as a period of arrears for capital adequacy and regulatory reporting purposes.

APRA has decided to extend this regulatory approach to cover a maximum period of 10 months from the start of a repayment deferral, or until 31 March 2021, whichever comes first.

Banks are expected to undertake an appropriate credit assessment before granting the borrower new or extended loan repayment deferral arrangements.

APRA will also adjust the normal regulatory treatment of loans that are restructured before 31 March 2021, allowing banks to continue to treat them as ‘performing’ for capital and regulatory reporting purposes.

“These measures are designed to incentivise ADIs to continue to support their customers through an extended period of uncertainty, while at the same time facilitating the restructure of eligible loans in a measured and timely manner,” said APRA Chair Wayne Byres.

Banks are expected to have a comprehensive plan that demonstrates how they will systematically work through the large volume of impacted customers, as well as avoid operational constraints as deferral periods come to an end.

In addition, banks will have to provide regular disclosures regarding the status of their deferred, restructured and impaired loan portfolios.

In a statement, the ABA (Australian Banking Association) said banks will contact customers with reduced incomes and ongoing financial difficulty as they approach the end of their deferral period, to “find the best options” to restructure or vary their loans.

“If these arrangements are not in place at the end of a six month deferral, customers will be eligible for an extension of their deferral for up to four months,” the ABA said.

“A deferral extension of up to four months will not be automatic, it will be provided to those who genuinely need some extra time.”

The ABA estimates that there are over 800,000 loans that have been deferred worth over AUD 260 billion, over 60 percent of which are residential mortgages.

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APRA Extends Regulatory Approach For Covid-19 Loan Deferrals

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