Virus myth busting: Shayne and Mark
As people across Australia rightly turn to their banks for help to deal with the financial impacts of COVID-19, some are coming across complicated concepts they haven’t heard of before.
To help explain some of these concepts, and the economic reasons behind them, ANZ CEO Shayne Elliott and Group Executive Australia Retail & Commercial Mark Hand sat down (remotely) to share their expertise.
You can find the highlights of each discussion below or hear the full conversation in the podcast.
Deferring a home loan
For many people, a mortgage is the biggest investment they’ll make in their lives. In these uncertain times, it can be extremely overwhelming to have to continue meeting minimum mortgage repayments. One of the measures released in ANZ’s relief package is the ability to defer mortgage payments for six months.
“I think the industry as a whole has had a great response in terms of allowing customers to defer their repayments on mortgages whilst this plays out,” says Mark.
“[For] a lot of cases, it's a three-month deferral - a check point. And if the world hasn't changed, it's likely to be a six-month deferral ultimately.”
However, Mark clarifies a deferral means the mortgage will be paid later rather than not at all.
“You are paying later so you continue to accrue interest on your loans but it gets capitalised into the principal amount… It [basically] adds six months on to the length of the loan.”
Credit ratings and interest capitalisation
If customers do choose to defer their mortgage repayments, they may be worried their credit score will be impacted. Mark and Shayne are quick to reassure customers there will be no negative consequences of reaching out for help.
“You're not going to be flagged as [being] in arrears. Part of the agreement is that it is… a restructuring of facilities with the bank. We're not going to impact your credit rating in this period.”
Shayne adds customers shouldn’t worry too much about what might happen at the end of the six months.
“Hopefully [in six months] we're in a position where many of our customers will be back in work, back confident in terms of their income and feeling good about getting back on top of their finances.
“Some may not be [so] we'll deal with those when we get there. There [are] still a lot of options. We'll figure out at the end of six months what the right thing to do is customer-by-customer.”
Although deferring mortgage repayments will be enough to help many customers through this period, Mark and Shayne acknowledge there will be some customers who need extra help. Their main advice for those people is to reach out to the bank as soon as possible.
“We've got [hardship processes] that are well established in terms of talking to these customers, understanding their particular circumstances and coming up with an arrangement for them to get out of that,” says Mark.
He acknowledges that although, in some cases, the arrangements are not loved by customers, they are determined it’s in their best interest.
“What I mean by that is sometimes it’s in the best interests of a customer to sell the property that they're in, settle a large amount of debt and be left with capital at the end of it. They can get themselves back to employment or get themselves back to health and then get on with life with some money in the bank,” Mark explains.
“We've got teams in place that have these conversations day in, day out, because despite the environment now, people run into trouble at all times of the year.”
Pivoting and rebounding
Some customers are looking to reshape their finances or business to help manage through COVID-19. Shayne and Mark both agree steps taken now may help customers prepare for the future.
“Our forecast is for somewhere between 20 to 30 per cent of customers [to apply for a relief] package in some shape or form,” says Mark. “That means 70 per cent of customers think they're ok without it.”
Shayne adds there are going to be sectors that do very well during the COVID-19 such as logistics who are going to be looking to the bank to support them.
For those who do need some help though, Mark says now is the time to reflect on how to make their businesses more resilient once the economy rebounds.
“Have a business plan about how [you’re] going to come out the other side. What are [you] going to do? What's going to be different about [your] business?”
Negative interest rates
With interest rates at historical lows, some customers might be confused about what happens if they drop to – or below – zero.
“What we know is internationally there are quite a few countries around the world where they do experience negative interest rates,” says Shayne.
“However, the Reserve Bank of Australia (RBA) has made it very clear that they don't see that happening in Australia. And while you can never say never, they have pretty much ruled it out and said they've got lots of other options in terms of ways they can continue to stimulate the economy and get money flowing without having to resort to [negative rates].”
Shayne adds: “But the point about low rates is they're there for a reason. They're there hopefully to make borrowing cheaper, to make the cost of debt [lower] for businesses and mums and dads to remove that burden from them and hopefully encourage people to get out and invest when the time is right.”
On the topic of investments, Shayne and Mark touch on the balance between helping both residential investors and their tenants.
“It's a broad church of people out there who are landlords,” Shayne says. “Some are mums and dads… all the way up to very large corporate institutional landlords.”
He says the bank has spoken to a wide range of investors about the need to retain current tenants.
“The best person to be renting a space is the person who's there now,” Shayne says. “Kicking people out of space today is just in nobody's interest. Who exactly are they going to be replaced with?”
Shayne adds the best thing to do is for landlords to keep tenants in good shape so they're ready to bounce back when things improve.
While no-one knows exactly how long COVID-19 will last, Shayne and Mark discuss the world’s changing reality beyond the pandemic.
Shayne says although the initial feeling of panic in the pandemic seems to have lulled, now is not the time to get complacent.
“This thing's going to continue to evolve and change,” he says. “People need to be a little bit cautious, not scared, but just a little bit cautious.”
They both agree that the best advice they can give customers is to keep speaking to the bank about any and all of their anxieties.
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