Lenders must more accurately report mortgage delinquency data: APRA

Prudential regulator APRA has written to lenders warning them they must accurately report overdue loans to borrowers who have been granted hardship concessions.

The regulator is concerned that lenders have been relaxing their reporting standards in relation to these loans, which can paint a distorted picture of the performance of a lender's loan book.

APRA executive general managers Keith Chapman and Brandon Khoo wrote to banks on August 8 saying there had been instances where lenders were “re-ageing arrears on loans granted such concessions in order to prevent the triggering of collections processes”.

Re-aging refers a to a lender increasing the term of a loan agreement when the borrower has missed one or more payments and changes the account from “delinquent" to “current”.

If a significant number of loans are re-aged, it can make a lender’s loan portfolio appear of higher quality than it actually is.

The letter, seen by the Australian Financial Review, adds that while this practice may be “reasonable from an operational perspective, it can obscure prudent internal and regulatory reporting of past-due and impaired loans”.

The strict approach adopted by APRA comes as banks are required to hold higher reserves of cash under global banking rules, which conflict with consumer rules designed to help borrowers who fall into arrears due loss of a job, illness or other hardship.

In Australia, banks can accommodate these hardships by reducing the interest rate, providing a “holiday” from loan repayments, lengthening the loan maturity, or offering full or partial deferral of interest for a temporary period.

APRA rules require that lenders have a full understanding of its the risk profile of the loans that are re-aged, with the risks appropriately reflected in internal management reporting, provisioning and capital adequacy calculations.

A loan is considered “past due” when at least 90 calendar days have elapsed since the due date of the last required payment.

“These loans may be restored to performing status for APRA reporting purposes once sufficient payments have been made such that the amount owed is less than 90 days’ worth of payments; and past-due loans that are not well secured must be reported as impaired,” APRA said in its letter to lenders.

Larry Schlesinger

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer

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