Riskier loans increase market share as banks juice the TFF

author-avatar By on June 09, 2021
Riskier loans increase market share as banks juice the TFF

The number of new loans with high debt-to-income ratios increased over the March quarter, as banks draw down on the Term Funding Facility.

The prudential regulator's (APRA) latest data on banks released yesterday shows new residential mortgages with debt-to-income (DTI) ratios above six-times grew by 1.8 percentage points over the March quarter in 2021.

DTI loans with ratios above six-times made up nearly one fifth (19.1%) of all new loans written in the quarter.

Non-performing loans (NPLs, i.e. loans in default) have also increased from 1.04% in December 2020 to 1.07% in March 2021.

"The outlook for NPLs remains uncertain with the expiration of repayment deferrals programs at the end of March, and as some government support measures (including JobKeeper) cease," APRA's report said.

"However, these factors may be offset by continued improvement in the economy and the labour force, and relatively low interest rates."

New housing NPLs increased from $4.1 billion in December 2020 to $5.1 billion in March 2021.

Loans between 30 and 89 days-past-due declined in value by 9.8% over the quarter to $10.6 billion, but "loans in this category may increase in the June quarter as those borrowers who had previously taken up repayment deferrals readjust to making repayments," according to APRA.

However, new lending with high loan-to-value ratios (LVRs) declined, with the share of LVRs above 80% decreasing to 41.1% in the quarter, down from 42% in the December quarter. 

A presentation by the Reserve Bank (RBA) Assistant Governor Christopher Kent this morning also shows that Term Funding Facility (TFF) drawdowns have ramped up ahead of it winding down at the end of this month.

"Drawings under the TFF have picked up noticeably ahead of the 30 June deadline. We anticipate that the bulk of funding available under the facility will be taken up, and so the scheme will be providing a substantive source of low-cost funds for the next three years," Mr Kent said.

"The average rates paid by borrowers have fallen in addition to the decline in standard variable rates because new borrowers have been offered even lower rates than most existing borrowers, and many existing borrowers have been able to refinance their loans at lower rates.

"Fixed housing rates have declined by more than variable rates since the start of the pandemic in response to the Bank's policy measures – so much so that there's been a noticeable increase in the share of new household loans at fixed rates."

The TFF provides in excess of $200 billion in cheap funding to banks in order to facilitate lending and to keep the debt economy well-oiled.

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Photo by Rae Wallis on Unsplash

Disclaimers

The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered which includes retail products from at least the big four banks, the top 10 customer-owned institutions and Australia’s larger non-banks:

  • The big four banks are: ANZ, CBA, NAB and Westpac
  • The top 10 customer-owned Institutions are the ten largest mutual banks, credit unions and building societies in Australia, ranked by assets under management in November 2020. They are (in descending order): Great Southern Bank, Newcastle Permanent, Heritage Bank, Peoples’ Choice Credit Union, Teachers Mutual Bank, Greater Bank, IMB Bank, Beyond Bank, Bank Australia and P&N Bank.
  • The larger non-bank lenders are those who (in 2020) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.
  • If you click on a product link and you are referred to a Product or Service Provider’s web page, it is highly likely that a commercial relationship exists between that Product or Service Provider and Savings.com.au

Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site.

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*Comparison rate is based on a loan of $150,000 over a term of 25 years. Please note the comparison rate only applies to the examples given. Different loan amounts and terms will result in different comparison rates. Costs such as redraw fees and costs savings, such as fee waivers, are not included in the comparison rate but may influence the cost of the loan.

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Harrison is Savings.com.au's Assistant Editor. Prior to joining Savings in January 2020, he worked for some of Australia's largest comparison sites and media organisations. With a keen interest in the economy, housing policy, and personal finance, Harrison is passionate about breaking down complex financial topics for the everyday consumer.

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