Australia’s banking watchdog is starting to shift from its initial “emergency response” to the coronavirus to a longer-term outlook.
Australian Prudential Regulation Authority chair Wayne Byres told an online forum on Wednesday that five months into the pandemic “some of the more dire dire forecasts … for the Australian and New Zealand economies look like they may have been avoided”.
“We will be updating our capital management guidance next week,” Mr Byres told the Trans-Tasman Business Circle.
“We will modify the guidance, and extend it for the remainder of this calendar year, shifting from the immediate, short-term emergency response in April to a setting with a somewhat longer-term outlook.
“Our goal is to … ensure capital management practices clearly have regard to the continuing uncertainty in outlook, that stress scenarios can be overcome without having to resort to cutting business activity, and that regulated firms are not unduly constrained from raising capital if and when needed.”
He said in the same way that governments and health professionals had sought to “flatten the curve” of new infections, the challenge from an economic and financial perspective is to “find a way to reduce the speed and depth of the contraction, as doing so is also likely to minimise its longer-term damage”.
ARPA has given banks the ability to defer loan repayments until March 2021, extending it from the initial September date when the easing of regulations was due to end.
“At the same time, we have made clear that banks should only offer further repayment deferrals in cases where they have some degree of confidence the borrower could return their loan to performing status.”
He said the regulator had no intention of creating a “capital cliff-face that banks or insurers need to rapidly climb”.
“As we have done in the past, our approach will be to allow banks and insurers to rebuild (to the extent any rebuild is even required) in an orderly manner, and in a way that doesn’t unnecessarily constrain activity or economic growth.”