On Thursday (19 March), the Reserve Bank of Australia (RBA), the federal government and the Australian Prudential Regulation Authority (APRA) announced a raft of new measures to support the domestic economy in the wake of the coronavirus outbreak.
In response to these measures, the Australian Banking Association (ABA) announced that its members would suspend principal and interest loan repayments for distressed small-business customers for six months.
All four major banks have announced they will also extend the ABA’s initiative to distressed home loan customers, enabling them to defer repayments for up to six months.
The big four banks also announced other measures for personal and business customers, including interest rate reductions.
ANZ is the only major bank to announce reductions to its variable home loan rates, reducing rates across all products by 15 bps, effective from 27 March 2020.
The bank will also introduce a two-year fixed rate of 2.19 per cent for owner-occupiers paying principal and interest.
For business customers, ANZ will:
- decrease variable interest small business loan rates by 25 bps, effective from 27 March 2020;
- provide temporary increases in overdraft facilities for 12 months; and
- reducing new two and three-year fixed rates for secured SME loans of up to $1 million by 80 bps to 2.59 per cent, effective 3 April 2020.
ANZ CEO Shayne Elliott commented: “Our package supports Australian business and the people who work for them. We understand the impact this crisis is having, and ANZ will play a major role in backing Australia’s economy and our customers through these challenging times.
“We have been working with both the federal government and our regulators to keep money flowing through the economy, and we’ll do all we can to keep businesses afloat and Australians employed, as well as reducing the financial pressure on households.
“Our decision to reduce variable home loan and small-business rates is the right thing to do for our existing customers, particularly the significant number of our home loan customers who are self-employed and managing the effects of the COVID-19 crisis on their own businesses.”
The Commonwealth Bank of Australia (CBA) has also announced a number of relief measures for households and small business but has not reduced variable mortgage rates.
CBA home loan customers can access the following:
- cuts to one, two and three-year fixed owner-occupied principal and interest (P&I) loans by 70 bps to 2.29 per cent – effective for both new and existing customers from 1 May;
- automatically reduced repayments for all variable P&I home loan accounts (to the minimum required within the borrower’s loan contract), effective from 1 May. However, borrowers will have the opportunity to opt out if they wish to retain their current principal repayment levels; and
- the option to defer loan repayments by up to six months.
For business customers, CBA will:
- auto-enrol 76,000 businesses into loan deferral arrangements for up to six months;
- reduce rates on business loans by 100 bps, in addition to the 25 bps reduction announced on 3 March, effective 3 April;
- participate in the RBA’s new term funding facility, aimed at providing low-cost credit to businesses; and
- continue to offer a range of measures to provide further assistance to customers facing financial hardship.
For depositors, CBA will:
- increase 12-month term deposit rates by 60 bps to 1.70 per cent for new and existing CBA personal customers, available from 19 March 2020 on balances from $5,000 to $2 million; and
- increase eligibility criteria for personal overdrafts, available online or through the CommBank App.
Following the announcement, CBA CEO Matt Comyn said: “These are unprecedented times, and we will continue to take decisive actions to support households and the small-business community. We stand shoulder to shoulder with the government, the Reserve Bank, our regulators and the banking industry to support the economy at this time.”
He continued: “The Commonwealth Bank will extend the ABA’s loan deferral scheme to include all customers with a home loan. This will provide support of up to $10 billion to Commonwealth Bank households and small businesses over the next six months.
“To ensure immediate support, CBA will also auto-enrol 76,000 of its small-business customers into loan deferral arrangements for up to six months from 1 April. This will ensure that $240 million of support immediately reaches small businesses who are most vulnerable in the current environment.”
National Australia Bank (NAB) has also announced that it would extend the offering to home loan customers experiencing financial hardship.
Mortgage customers will be able to pause home loan repayments for up to six months, including a three-month checkpoint. For a customer with a typical home loan of $400,000, NAB said this could mean access to an additional $11,006 over six months, or $1,834 per month. Customers also have the option of reducing repayments on their variable rate home loans.
In addition to suspension of repayments for home loan and business customers, NAB will:
- cut 200 bps from interest rates on new loans and all overdrafts on its flagship digital business product QuickBiz, effective March 30;
- reduce variable rates on small business loans by 100 bps, effective March 30;
- reduce fixed home loan rates by up to 60 bps; and
- introduce a 10-month term deposit rate of 1.75 per cent for depositors.
Like the Commonwealth Bank of Australia (CBA), NAB will not reduce variable home loan rates, despite the Reserve Bank’s emergency cut to the cash rate.
NAB CEO Ross McEwan said: “Our focus is clear — to support our business and personal customers with their financial needs when they need it most.
“These measures will provide significant relief to businesses and home buyers over the next six months as we all deal with this unprecedented situation.
“Businesses in particular need help and they need it now, so we have come through with a range of measures. This support will provide cash flow relief so they can stay open and keep people in jobs. One-third of Australia’s small to medium businesses bank with NAB, and we are going to be there for them.”
Meanwhile, Westpac will offer customers who have lost their job or suffered loss of income as a result of COVID-19 loan deferrals of up to three months on their home loan mortgage repayments, with extension for a further three months available after review.
As with all ABA members, it will also offer small-business customers repayment holidays of up to six months.
Westpac said it will also:
- reduce overdrafts by 200 basis points for new and existing customers, effective Monday, 6 April 2020;
- reduce variable interest rates on small-business cash-based loans by 100 bps, effective Monday 6 April 2020;
- introduce a 2.29 per cent fixed rate home loan for one, two and three years for owner-occupied customers on P&I repayments with a Premier Advantage Package, effective Friday, 27 March 2020; and
- introduce a 12-month term deposit of 1.7 per cent. This will rise to 2 per cent over eight months for Australians aged 65 years and over (up to $500,000 per customer) — effective Friday, 27 March 2020.
In addition, Westpac announced a $10 billion home-lending fund to assist more Australians into home ownership.
Westpac Group acting CEO Peter King said: “We are determined to assist customers through this extraordinary period.
“This is a once in a lifetime event and a united response by government, regulators and corporate Australia is exactly what we need.”
Non-majors, including Bendigo and Adelaide Bank, Macquarie Bank, Heritage Bank and MyState, have also released relief packages for home loan and business customers.
‘A game changer’
Treasurer Josh Frydenberg congratulated the banking sector for its response to the ongoing crisis, particularly noting the ABA’s decision to suspend repayments for distressed small businesses.
“This unprecedented move by the banks is a game changer. It will provide a big boost to the confidence of small businesses at this difficult time,” he said.
“The banks have stepped up to the plate and are playing their role as part of Team Australia.
“Small businesses are the backbone of the economy employing more than 5 million Australians who stand to benefit from this relief.”
Mr Frydenberg concluded: “[The] announcement is another demonstration of the strength and resilience of Australia’s financial system.”