How Covid-19 Is Affecting The Australian Lending Market

If we allow you to name one thing you didn’t make plans for this year, your answer undoubtedly would be Covid-19. Of course, we also did not plan for it, but here we are! We all have to live with it. It has been months since you all added the words to your everyday jargon, while also waiting to see the end of its rampage. For sure, the infection has affected many parts of the Australian economy, and the Lending Market is not left out. As part of our effort to inform our clients of happenings, we bring to you different ways the Covid-19 pandemic is affecting the Australian Lending Market. First, one thing you should know is that there would be a liquidity impact on the lending market. Depending on the extent, this may affect strong credit unions and banks. The Covid-19 pandemic is more likely to increase the credit risk of many borrowers in the lending market. The lockdown restriction measure, which significantly slowed down physical movement and economic activities in Australia, is one of the sources of the crisis rocking the lending market. The inability of consumers to go to work, engage in businesses daily and make a profit is almost crippling the lending repayment. In the same vein, the Covid-19 pandemic is causing a rapid decline in mortgage purchases. Since the virus became widespread in Australia, many residents have been more about staying safe and worrying less about the acquisition of mortgage cars, houses and electronics. This has led to low purchases. Moreover, the pandemic has led to a historic low-interest rate of 0.5% in Australia as announced by the Reserve Bank of Australia (RBA). The actual effect of this on the lending market is witnessing an increasing number of borrowers. Also, the lending market is beginning to witness a steady decline in the request for personal loans. This ugly trend is bitterly marked with contraction in the supply of credit to lenders across Australia. In the heat of the pandemic, banks granted retail customers leave to suspend repayment of home loans for a maximum period of six months. Nonetheless, the interest continues to accrue and will be paid alongside the suspended repayments. For small businesses, a keenly similar arrangement was put in place, as well as fee waivers and discounts depending on banks policies. The COVID-19 effect also extended to payment of establishment fee for equipment finance loans obtained from the lending market. Meanwhile, banks are enduring deferred repayments for up to six months from businesses that have borrowed a total of $10m. Furthermore, due to the current economic downturn, operators in the lending markets are reluctant to give out loans because of the fear many borrowers would be unable to make repayment as and when due. Without a doubt, this will affect their businesses and profit. Even more, loans are now selectively being given to persons evaluated to have a definite source of income at this period—for instance, private business owners. In the end, the lending market may require some government aids or benefits to survive the current hurdles and get back to its normal state.