More asking for help but borrowers resilient: Banks
Shayne Elliott says most ANZ customers are managing their way through financial pressures. Photo: AAP
Two of Australia’s big banks report a jump in the number of customers asking for help as interest rates spike, but say borrowers are proving resilient.
ANZ chief executive officer Shayne Elliott said some customers were struggling as rising rates pushed up borrowing costs but most were “managing their way through” the current financial pressures.
Higher interest rates have been inflating mortgage repayments, with the high cost of living also eating into household budgets.
Addressing a parliamentary economics committee hearing on Wednesday, Mr Elliott said only $6 of every $1000 in its Australian home loans portfolio was overdue by more than 90 days.
“This is better than before the pandemic,” he said.
The bank boss offered three explanations for the display of resilience: Strong levels of employment, big savings buffers and robust credit standards that have kept lending responsible.
About 70 per cent are also ahead on their mortgage repayments, with many customers paying more than they had to when interest rates sank lower during the pandemic.
“Now that rates are rising, it also means their monthly bills aren’t necessarily going up, they’re just less ahead,” Mr Elliott said.
But he said the resilience was in aggregate and some Australian households were struggling, with the bank observing a “modest increase” in the number of customers asking for help.
“We will continue to watch how our customers are going and support them when we can,” he said.
The bank’s CEO also outlined his position on the 3 per cent serviceability buffer, saying lowering lending standards would help few customers at the bank.
Stress-testing customers’ ability to make repayments at 3 per cent above the market interest rate is designed to protect a borrower if economic conditions or their financial circumstances change.
But there has been concern the rules are locking customers in “mortgage prison”, when borrowers cannot meet the stress-testing requirements to refinance to a better deal.
Mr Elliott said there would always be exceptions and some individuals were suitable for lower standards.
The bank’s position is that the Australian Prudential Regulation Authority’s 3 per cent buffer is appropriate but it is open to the standard being reviewed at a later date.
Later NAB CEO Ross McEwan had a similar view – that despite the increasing pressure after a record jump in rates since May 2022, people were still making their loans.
“We have been pleasantly surprised at the resilience that is shown,” he told the committee.
“We are starting to see an uptick in what we call ’30/60/90 day’, where customers have not been able to make the first payment, they missed one in 30 days. Do they then make a payment in the second month, which is 60 days? Or do they may miss a payment? And the third, which is the 90 days.
“But the levels that we’re seeing are still below the 10-year average and the levels we saw what in we still considered to be a normal year of 2019. So still very resilient.”
Mr McEwan and Mr Elliott will be followed at the hearing on Thursday by the bosses of Westpac and the Commonwealth Bank.
The Reserve Bank paused interest rate rises earlier this month, only the second time it had done so since beginning to hike the official cash rate in May 2022. Asked in Brisbane on Wednesday about the impact of that rapid lift, RBA governor Philip Lowe said he was confident higher interest rates were working to battle inflation.
“Talk to any retailer at the moment they will say I’m spending slowly and people trading down to cheaper items and in some cases small baskets,” he said.
“Consumption growth is weak and that is largely because of what is going on with monetary policy but also the declining incomes from higher inflation [shows the] policy is working, the issue is do we have to do more?
“That is to be determined and will be determined by our assessment of the inflation risks and outlook on what is going on with spending.”
Earlier, Treasurer Jim Chalmers said his priority was making sure banks were doing the right thing by their customers.
“That’s especially important in the context of interest rates, which have been going up since before the election,” he said.
“[We must ensure] they are swiftly passing on interest rate increases to savers as they have been to borrowers.”
-with AAP