ASIC and APRA questioned on $274 billion loan pause
ASIC is looking beyond the pandemic and in particular to where the “waves of potential insolvency” in small business sectors may emerge over the next two years as it responds to the sector’s $274 billion loan pause.
It was an assessment made by ASIC commissioner Sean Hughes at a parliamentary hearing on Wednesday.
Hughes was responding to parliamentary questions by Anne Aly, member of the standing committee on economics on how the corporate regulator was working with the banks in managing the pause on mortgage and business loans now totalling $274 billion.
Hughes highlighted that ASIC had already introduced new guidance on responsible lending through advice sent to the Australian Bankers’ Association
“It would not be an exaggeration to say that we are meeting daily with different lenders,” Hughes said.
“The big four banks, small and medium sized lenders and even bespoke lenders in the small business sector all understand the extent of the borrowers [on deferrals] that they have on their books and those in particular who are likely to face significant hardship.”
APRA deputy chair John Lonsdale also highlighted current initiatives that are supporting banks with managing loan deferrals including capital relief adding that the prudential regulator was assessing what further “collective action” can be taken in order to ease the transition for loans that cannot be repaid.
“It is something that has been discussed at the Council of Financial Regulators and we are in constant discussion with the banks.”
Both regulators were also questioned on how they are monitoring the conduct of banks in managing loan deferrals with their customers particularly around hardship.
A difficult issue
Aly, the member for Western Australia’s Cowan comes the “mortgage belt” where many of her constituents are on a mortgage pause
Hughes acknowledged that banks were working closely with their customers and to date it was ‘early days’ to assess any potential for misconduct.
“We believe that they certainly are responding well to the challenges that we are facing. But it's possibly something [monitoring misconduct] that we should come back and reconsider.”
Lonsdale acknowledged it was a “difficult issue”
He said the response to hardship will depend on the economic circumstances and how they play out.
“We have taken action to provide time and certainty for the banks to work through this challenge with their customers.
“At the end of the day, there will be some loans that are impaired. There will be some cases where customers will not be able to pay back the loan.
He added that the prudential regulator has no reason to question the current established hardship provisions that are in place despite these provisions being introduced before COVID-19.