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By Michael Yardney

Loan deferrals declining – that’s positive news

Bank customers struggling financially due to COVID-19 have been given a lifeline over the last few months and have been able to defer their loan repayments.

Australian Banking Association (ABA) chief executive Anna Bligh said more than 800,000 people had deferred repayments during the coronavirus pandemic leading to concerns about an "economic cliff" in September when the original loan deferral period was meant to end.Banks

While many borrowers were given another four months to start paying back their loans the latest figures from the Australian Prudential Regulation Authority show the volume of loan deferrals due to COVID-19 pandemic fell slightly in July 2020, as more borrowers started to make repayments on their deferred loans.

According to the data released by APRA:

  • $240 billion of loans were deferred in July, representing 9% of the total $2.7 trillion loans outstanding

  • Housing loans made up the majority of deferred loans, with $167 billion deferred in July, accounting for 9% of the $1.8 trillion in total in outstanding home loans

  • Exited or expired loans outweighed new or extended loans for the first time in July, with exited or expired loans increasing from $33 billion in June to $40 billion in July.

  • Small business loans have a higher incidence of repayment deferral with 17% of small business loans deferred.

Deferred loans

Total loans

Deferred loans, share of total loans


$240 billion

$2.7 trillion



$167 billion

$1.8 trillion


Small business

$55 billion

$319 billion


Source: Prepared by using APRA Temporary loan repayment deferrals due to COVID-19, July 2020 report

Please note: ‘housing lending’ refers to dollar amounts while ‘loans’ refers to number of loans.

 Canstar’s finance expert, Steve Mickenbecker explained:

“The degree of hurt in the Australian borrowing community has quickly become clear with $240 billion of lending in deferral in July,” said Mickenbecker.

“Deferrals ran up quickly in April, peaking in May at a concerning 10% of total lending. The good news is that deferrals have since trailed off to around 9%, with June and July combined showing more coming off deferral than adding to it.

“Small business has been hardest hit with deferral of around 17% of lending and 12% of loans, making sense as this is where the pain is most broadly and immediately felt.

“By contrast 9% of housing lending and 7% of loans are in deferral, with only a subset of borrowers employed in more vulnerable sectors.

“With such a sharp run-up of deferrals granted in March, April and May, the six-month deferral period that most banks' anticipated is approaching its end. The Australian Banking Associations announcement this week of a four month extension period for deferred loans will be a welcome relief.”

Financial commentator Pete Wargent said:

It's heartening to see some progress here, though 9 per cent (of loan deferrals) is a hugely elevated number, and there's still a long way to go.
Banks will still likely need to work with thousands of borrowers to help them through after the bulk of mortgage holidays have ended next year, perhaps in the first instance by offering interest-only terms.
This does raise an interesting question about what an 'acceptable' level of mortgage arrears might be from a financial stability perspective.
Western Australia has run mortgage arrears in the 2-3 per cent range for several years, and the world has kept turning.

About Michael Yardney Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and one of Australia's 50 most influential Thought Leaders. His opinions are regularly featured in the media.
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