The fiscal cliff that never came and 2021 lockdown impact

Even as loan books continued to perform in 2020, some observers insisted problems would come when some aspects of government fiscal support rolled off in the first half of 2021. This deterioration never eventuated, and lenders also say the latest wave of lockdowns has not yet sparked major asset-performance concerns.

DAVISON A year ago we were talking about the so-called fiscal support cliff, primarily what would happen when the JobKeeper programme was no longer available. This seemed to pass with no problems, but now much of Australia is back in full lockdown without the same support packages – and yet the degree of concern we heard in 2020 does not seem to apply. Why is this?

SCANLON Around the middle of last year we were very worried about our book’s exposure to self-employed and small-business borrowers. The fiscal cliff was playing on our minds and we were worried about what would happen after Christmas. So we began to scale back loan-to-value ratios (LVRs) and origination overall, and braced ourselves for a challenge.

But nothing happened. In fact, things got better. We saw great business, more origination, everyone was paying and arrears went down. We were completely wrong about what would happen after the 2020 lockdowns. I hope we are not wrong about this one, but at the moment we are not experiencing any problems.

ZILELI The experience from last year was that lockdown saw arrears performance improve. This is due mainly to borrowers paying down their loans using cash they were not spending on entertainment and travel.

Our arrears performance is about the best it has ever been and we do not see any reason for it to deteriorate in this lockdown period. Even if it lasts for a few months, we had a much longer lockdown in Melbourne last year so we are not foreseeing much impact.

As an indicator, we are not experiencing the same rush for hardship applications as we saw in March and April last year. It appears borrowers themselves are more comfortable with the current situation – unfortunately, going in and out of lockdown is becoming the norm.

BARRY Borrowers appear to be more resilient this time around. The borrowers who experienced difficulty last year have been managed and worked through the portfolio. In many cases, those loans are now money good. The housing market has been robust, meanwhile, and many individuals have been able to deleverage and repay their loans.

The lockdown effect is well understood this time around. Some small businesses and tradespeople saw work interrupted in this recent lockdown, but on the whole SMEs have been able to get back to work. The hardship rate in our portfolio is now at 0.1 per cent and the total number of requests to date is in the low double figures.

RIEDEL The impact on borrowers in Australia depends to some extent on the varying state-government approaches to lockdown. Last year in Victoria, the lockdown applied by the state government was very strict, and perhaps not pro-business. The approach in New South Wales (NSW) this year seems to be quite different.

I would not want to suggest one approach is better than the other. But there is less customer stress in NSW this year than there was in Victoria last year. Perhaps this is explained by the different approaches the state governments have taken.

However, I also think SME’s have learned to adapt to lockdown and this is another reason we are seeing fewer hardship requests in 2021 than 2020. Perhaps this is the best explanation for improved performance, rather than extraneous factors.

We were completely wrong about what would happen after the 2020 lockdowns. I hope we are not wrong about this one, but at the moment we are not experiencing any problems. 


DAVISON Does the degree of asset resilience lenders have seen suggest the impact and relevance of government support might not be as great as we thought it was last year?

AUSTIN That would be going a step too far. Government stimulus is the reason for the economy being so strong. The economy has pushed through all the lockdowns and it will push through this lockdown. When we come out on the other side, it will be with high vaccination rates and the economy will be in a very strong position.

At some point next year, the regulators will find they need to catch a tiger by the tail. This probably will start with the need for macroprudential measures and possibly early talk of rate rises.