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Image: Johan Swanepoel, shutterstock.com

Image: Johan Swanepoel, shutterstock.com

The Hibernating Economy: banking state of play

25 March 2020

The Hibernating Economy: state of play in banking sector 

By June Ma, Rohan Pitchford and Rabee Tourky

In our previous post we proposed a private sector solution to the provision of liquidity in the economy. Particularly, our suggestion is that the government facilitates the transmission of low rates by doing whatever it can to encourage renegotiation of loans, credit lines and debt forgiveness by private banks.

This is a regular post in which we look at the state of play in the banking sector and how banks are coordinating their activities while the economy is in hibernation mode due to the virus outbreak.

Small business loans

  • Australian Banking Association and commercial banks were given interim authorisation by the ACCC to work together to implement small business relief package. This applies to all ABA member banks who agree to participate.
  • Under the package, small businesses affected by COVID-19 with eligible loans (small business customers with less than $3 million in total debt) from participating banks will receive assistance for six months, which can include:
  • Deferral of scheduled repayments
  • Waiver of fees and charges
  • Interest free periods
  • No interest rate increases
  • Debt consolidation
  • Deferred interest will increase a customer’s outstanding loan balance. At the end of the deferral period, the term of the loan will be extended or the value of repayments increased; customers will not be required to repay the deferred interest as a lump sum.
  • Despite the authorisation from the ACCC, the relief options available do vary by bank, and exact options appear to be determined on a case-by-case basis.

Mortgage loans

  • In addition, some banks are offering assistance to customers affected by the outbreak with mortgages. This assistance is not covered by the ACCC’s authorisation of the small business relief package. Hence, the banks cannot currently work together to provide mortgage relief, leading to greater variation in the relief offered.
  • Customers of banks without specific assistance in response to COVID-19 can still apply for financial hardship assistance.

Details of what each institution is doing is available on in the companion PDF to this post.

Rabee Tourky is the Director of the Research School of Economics at the Australian National University and The Trevor Swan Distinguished Professor of Economics. His interest has been the operations of markets and market incompleteness.

Rohan Pitchford is a Professor of Economics in the Research School of Economics at the Australian National University. He works on financial stability and securitisation. he has published papers on default, securitisation, and contracts in the leading journals in Economics. He is a graduate from MIT.

June Ma is a pre-doctoral researcher at the Australian National University.

Updated:   31 March 2020 / Responsible Officer:  CBE Communications and Outreach / Page Contact:  College Web Team