Tackling emerging risks from the repayment holiday hangover

  • By Christine St Anne

Latest industry data suggests that there is a number of strategies banks can adopt now to help their customers navigate the risks from current and potential hardship.

For the most part a loan repayment deferral is the answer, however the greater assistance may be required for the transition away from loan repayment deferrals.

Recently Commonwealth Bank chief Matt Comyn told the Australian Financial Review that the bank would be helping customers to make repayments if they were able to transition sooner to work.

“We don’t want to leave it so nothing happens between now and the six month mark,” Comyn told the AFR.

It is this comment by Comyn, along with emerging economic data, which points to the very interesting and crucial subject of what happens after the repayment deferral period.

RFi Group data to date reveals that consumers remain quite pessimistic at least in the short term.

Those degrees of pessimism, either being caused by current income reduction or loss or an anticipated future income reduction.

The research found that 2 in 5 consumers indicate their income has decrease as a result of Coronavirus, this proportion is higher among younger generations.

It is also this generation which anticipates a further 6 months of this potential decrease.

However, RFi’s analysis based on its upcoming report, on potential Repayment Holiday Hangovers, seems to highlight that the group of consumers who have recently taken out their first home or have recently upsized as a growing family, are potentially in need of greater assistance due to the higher level of debt and high cost of living.

“Currently banks need to make sure that they stay close to their customers. Whilst not everyone has a debt product, we can see that those that do and are on a reduced income, have not necessarily requested assistance,” RFi Group Managing Director Julien Wilson said.

“Similarly, if they are on a deferral program, they may underestimate the difficulty in replacing that income to service that debt,” Wilson said.

For banks there is an opportunity for the customers to have some flexibility on repayments and potentially refinancing,

The RFi Group data to date also highlights the importance of communication effectiveness.

Banks needs to ensure that they convey simple and transparent messaging around the support packages in place.

Some brands have transitioned well, however some naturally were caught off guard.

RFi found that there was mixed awareness and cut through on messaging made all more interesting by the differing needs of customers.

Overall, it is clear that managing a current portfolio of hardship cases will require some careful consideration, as much as forecasting future demand for hardship.

For income impacted consumers, more than half have admitted that they anticipate that it take 6 months or longer to return to normal personal finances.

A timeline very much of note.

RFi Group's Repayment Holiday Hangover report will provide in-depth analysis of key the challenges for banks in the current environment including changing consumer sentiment, which consumers are most at risk, which competitors have the most to lose and what lenders need to do now to ensure trust in the long-term.