Australians are starting to repay the debt that’s banked up as a result of the COVID-19 economic crash, but two of the big banks’ reports show the road back will be anything but smooth.

NAB and Commonwealth Bank’s (CBA) reports from the past week both show deferred mortgage numbers were in decline.

NAB further reported 20 per cent of its overall customer base have seen their incomes halved since April.

CBA said the number of mortgage deferrals had fallen from a peak of 154,000 when the mud hit the fan in April to 135,000 on July 31.

For NAB the decline was not as pronounced – the peak fell from 96,000 in May to 92,000 at the end of June.

CBA only had 8 per cent of its mortgage loan book in deferral, whereas for NAB the figure stood at 12.3 per cent – down from a high of 12.7 per cent.

There’s no concrete reason for the difference between the two banks, but analysts suggest it’s due to internal deferral request processes.

Banking analyst with Moodys Investors Services Daniel Yu said the turnaround in recent months is driven by the banks moving to rein in deferrals by looking closely at their customers’ positions.

“In March they were lenient in granting deferrals to anyone who said they need them,” Mr Yu said.

Toughening up

“By July the banks started to check in with people to see if they really needed the deferral,” Mr Yu said.

“It seems that there are people who didn’t really need to defer but had done so as an insurance measure and some of them have started to repay.

“The banks told them, ‘It’s just a deferral, it’s not going away’ and you will have to pay more over the life of the loan so start to repay if you can.”

To give some overall perspective the Reserve Bank said at July 31, 12 per cent of mortgages across the banking system were in deferral as were 20 per cent of small business loans.

Of deferring mortgage payers, 20 per cent were making some payments but not the full amount, the RBA said.

But the deferral curve is not going to continue to decline without hiccups.

CBA believes 10 per cent of deferrers are struggling and will not be able to go back to business as usual. They will be encouraged to move to interest only, the bank says.

Bleak view

NAB CEO Ross McEwan agrees – and he’s not optimistic that the deferrers will easily recover.

“It’s very clear that there will be a large number of people that will need support of some shape or form at the end of this and that could be through restructuring of loans, be that business or home loans, going onto interest only for a period of time but there are a number of things that we can do to be helpful here,” Mr McEwan told a media conference on Friday.

Both CBA and NAB reported their business loan deferrals were diverging.

For NAB they had risen from 14.4 per cent of total business loans to 15.8 per cent by June 30.

CBA reported a major step down from 86,000 to 59,000 between the peak and July, but after that fall totalled relatively more than NAB experienced at 15 per ent.

That implies that CBA was far more generous to businesses in the early days of the crisis than NAB.

Economist with BetaShares David Bassanese said banks were taking advantage of the current low interest rate environment to aid their shareholders.

“Term deposit interest rates are now so low that term deposits have virtually disappeared,” Mr Bassanese said.

“About 3 million people rely on term deposits for income but they are just putting the money on call at the bank.

“Given that APRA has allowed the banks to pay half their earnings in dividends you could argue that banks are using low interest rates to everyday customers to pass through to the big end of town.”

A spokesperson for AMP Bank said it had given mortgage deferrals to 4700 clients, or 11 per cent of borrowers, and was now working with them to get repayments back on track.

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