Billions overdue as new borrowers rush to get a home loan
National Australia Bank has revealed that it has seen a “meaningful uplift” in past-due mortgages from customers who had been on deferral due to the COVID-19 crisis.
NAB also lifted provisions related to business loans in the aviation, tourism, hospitality and entertainment industries, according to a report by The Australian Financial Review. The bank said that asset quality had been mixed over the half to March 31, and it had seen a “meaningful uplift” in the number of customers more than 90 days late on their loan repayments.
NAB CEO Ross McEwan said the bank’s decision to proactively engage borrowers about their options, rather than automatically defer loans as other banks had done, gave the bank a head start in dealing with the fallout from COVID-19.
“We are probably three to four months ahead of the rest of the industry,” McEwan told AFR. “Many of the others let them go … we chose not to do that.”
While NAB’s flagship banking division reported a 10.3% drop in earnings to $1.2 billion, McEwan said he was confident of a turnaround. He pointed to a strong uptick in demand from borrowers in March, which continued in April and would be reflected in the second half.
“We are seeing a pipeline growing we haven’t seen for years and years and years,” he told AFR.
McEwan said he wasn’t worried about more intense competition in business banking from players including other major banks and fintechs.
“We are doing very well in this marketplace,” he said. “We are the biggest bank and we won’t be giving that up anytime soon.”
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On Thursday, NAB revealed that mortgages worth $4.9 billion, related to customers who had exited deferral plans, were behind on repayments – about 10% of the deferred loan peak, with about half that amount more than 90 days past due, AFR reported. The news comes despite Australia Banking Association data saying under 1% of deferred loans remained frozen. NAB said the tardy loans are being managed on a case-by-case basis.
SME customers that deferred loans performed slightly better, with about $2 billion – or 9% of the peak – late, and only $200 million more than 90 days past due.
NAB said mortgages held by Victorian borrowers and interest-only loans were over-represented among the tardy mortgages, and that businesses in the retail, hospitality or airline sectors were more likely to be 90 days past due.
McEwan told AFR that the bank is paying close attention to companies in air travel and related sectors, since the longer it took to open borders and return to normal, the more likely it was that the businesses would collapse.
“The longer this goes on, the more risk there is that airlines will get themselves into trouble,” he said.
At the same time NAB deals with troubled loans, it’s seeing a tsunami of mortgage applications as the economic rebound drives the biggest boom in housing prices in nearly two decades. NAB posted a 45% spike in applications over the half, and chief financial officer Gary Lennon said the flood of applications was putting “pressure on the back office.”
However, McEwan told AFR that he wanted mortgage processing problems solved, and that the bank aimed to return to the system average in the second half.
“This boom and bust carry on; we’ve got to build a machine that works consistently,” he said. “That’s why we want one mortgage factory rather than four.”
