News Service from House Harris

Big four profits won't be hurt by mortgage relief agreement

SYDNEY, April 6 AAP - The profits of the major banks are unlikely to be hurt by their agreement to provide extensions for mortgage repayments for borrowers who lose their jobs, according to analysts.

If anything, the `big four' are likely to benefit from the good publicity associated with the announcement by the government on Sunday and the ensuing reinforcement of their "safe" image.

"It's hard to see it being a major drag on earnings," Austock Securities analyst John Buonaccorsi said on Monday.

"I don't think they're making a huge sacrifice, and in times like this the banks are a bit more flexible than they normally would be because they want the loan to be in the payment column."

The federal government said on Sunday it had reached agreement with the big four to offer a 12 month period of relief from mortgage payments to workers who have lost their jobs, while also consider extensions to mortgage contract periods and reducing repayments.

The banks, Commonwealth Bank of Australia Ltd, Westpac Banking Corporation, ANZ Banking Group Ltd and National Australia Bank Ltd, had $468 billion in mortgages lent to owner-occupied borrowers, equivalent to 86 per cent the Australian market, according to Australian Prudential Regulation Authority figures for February.

Mr Buonaccorsi estimated that 0.35 per cent to 0.4 per cent of home loans were 90 days or more in arrears, equivalent to $1.9 billion of the total for the big four, which wasn't a large amount, even if the number was rising slowly.

Southern Cross Equities analyst TS Lim (TS Lim) also said it wouldn't be much of a burden for the big banks because the plan was similar to what they were already doing for small and medium enterprise (SME) customers.

"This is another tool available to the banks," he said.

Mr Lim also said it was important for the banks to do a good job in managing their customer relationships.

But Mr Lim did warn that the banks could be hit if unemployment surged.

The number of jobs advertised on the internet and in newspapers fell for the eleventh month in a row in March to the worst level in four years, according to an ANZ survey released on Monday.

ANZ head of Australian economics Warren Hogan said the bank expected the unemployment rate to rise to more than eight per cent next year, from 5.2 per cent in February.

Mr Buonaccorsi said the banks were already factoring in an unemployment rate of eight per cent or higher.

He is estimating that the proportion of bad debt for all loans at the debts would peak at between 0.75 per cent and 0.85 per cent in the next two years, about half the rate during the recession in the early 1990s.

Resi Mortgage head of consumer advocacy Lisa Montgomery said she hoped the latest agreement wouldn't further entrench the big four's market dominance.

"We hope people wouldn't choose a lender based on the potential for that repayment holiday," Ms Montgomery said.

"This particular initiative reinforces the safety of going with the big four, and borrowers need to remember they're borrowing money, not investing it.

"Organisations that aren't the big four also have similar procedures."

Ms Montgomery also warned against taking up the repayment break lightly, as a year would add $16,000 to a $300,000 mortgage.

Abacus, the industry body for Australian credit unions and mutual building societies, said in a statement on Monday that its members already worked with members who faced financial hardship and were having trouble repaying loans.

"In terms of the commitments that the big banks have made, credit unions and mutual building societies have been providing this sort of assistance to our members for years," chief executive Louise Petschler said in a statement.