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What’s ahead: ABA addresses September ‘cliff’ SME concerns

Maja Garaca Djurdjevic
Maja Garaca Djurdjevic
24 August 2020 3 minute readShare
SME concerns

The Australian Banking Association has published a list of things business owners need to know about COVID-19 bank relief as we head towards September and the end of the initial six-month loan deferral period.

In July, the ABA announced a four-month extension to the six-month deferral period, allowing Aussies in financial hardship to defer their loan repayments until January 2021.

However, the ABA has advised those business owners that can start their repayments at the end of the initial deferral to do so.

“If COVID has left you in difficulty and you need more time, talk to your bank,” the ABA has said.

“While you work with your bank to restructure your loan, you may be eligible for a further four-month deferral.”

According to the association, some small, medium and family businesses are starting to make their loan repayments again, with the value of SME loan repayments on deferral dropping by more than $686 million in June.

ABA chief executive Anna Bligh said the new figures showed small businesses were growing in confidence about Australia’s economic future.

“These figures show there are some green shoots emerging in our economy, and that’s a positive sign,” Ms Bligh said.

“There’s a very long road, and plenty of hurdles to clear, but it’s encouraging to see small, medium, family businesses slowly regaining some confidence.”

Below we bring you the ABA’s answers to some of the most frequently asked questions regarding the banks’ ongoing COVID relief.

‘I’m nervous about telling my bank I’m in trouble’

“Your bank wants to partner with you through this difficult time,” the ABA has said.

Many banks are contacting their customers directly to see what help they may need. However, the ABA has advised those that are worried to contact their bank as soon as possible.

“The earlier you contact your bank, the more assistance they will be able to provide.”

‘How will my loan deferral be reported if I was behind in my payments before the crisis?’

If you were behind in repayments before, the ABA has advised that the banks won’t report the repayment history information for the deferral period; they will leave that field blank for the duration of the crisis deferral period.

‘Why is my bank still charging interest on my deferred loan?’

For every dollar that an Australian bank lends, regulation requires them to hold a certain amount of capital. If banks don’t charge interest, even if the loan is deferred, the loan must then be treated as “impaired” under the accounting and banking rules. The bank is then required to hold more capital to support that impaired loan.

According to the ABA, if banks stopped charging interest on the hundreds of thousands of deferred loans during the COVID19 pandemic, they would not have enough capital to provide new loans.

‘Can I get an extension on my original deferral?’

Customers with reduced incomes and ongoing financial difficulty due to COVID-19 may be eligible for a further deferral period of up to four months, during which time they will be expected to work with their bank to find the best solution to assist them to return to repayments through a restructure or variation to their loans.

This four-month extension will not be automatic, the ABA has stressed. However, it will be provided to those who genuinely need some extra time.

‘What happens if I can’t make any more payments at all?’

The ABA has assured those who cannot make a payment at the end of the six-month deferral period, or the four-month additional extension, that their bank will work with them on the best solution to suit their needs.

According to the ABA, those eligible for the four-month extension will see it take effect from the end of their first six-month deferral period.

‘Do I have to make one big repayment at the end of six months?’

“No. Participating member banks will not apply or require payment of the capitalised interest at the end of the deferral period,” the ABA has underlined.

It is a condition of the deferral scheme that participating member banks will not require payment of capitalised interest at the end of the six-month term.

“If your bank is participating in the scheme and has told you that it will require such a payment, please ask to speak with someone more senior at the bank,” the ABA advised.

What’s ahead: ABA addresses September ‘cliff’ SME concerns
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Maja Garaca Djurdjevic
Maja Garaca Djurdjevic

Maja Garaca Djurdjevic is the editor of My Business. 

Maja has a decade-long career in journalism across finance, business and politics. Now a well-versed reporter in the SME and accounting arena, prior to joining Momentum Media, Maja reported for several established news outlets in Southeast Europe, scrutinising key processes in post-conflict societies and enabling citizens to influence decision-making.

You can email Maja on [email protected] 

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