ASX bank payment holidays to continue, time to buy banks?

ASX banks are going to extend payment holidays for borrowers who are still in trouble but can prove they will be good borrowers.

ASX banks to continue supporting the economy

For the past few months banks have been taking on a lot of the burden for the economy. ASX banks like CBA (ASX: CBA), Westpac (ASX: WBC), ANZ (ASX: ANZ) and NAB (ASX: NAB) stepped up to help borrowers who were facing financial difficulty due to COVID-19 impacts due to no fault of their own.

Payments were paused for six months to September 2020 for borrowers who needed it. But we’re getting closer to that September deadline, which is also when jobkeeper was due to expire.

Banks and the government don’t want the economy to fall off a cliff. Forced property sales could cause a downward spiral and could lead to a lot of bad debts for banks.

This morning the Australian Financial Review is reporting that the Australian Prudential Regulation Authority (APRA) would extend more regulatory relief to the banks as part of the Team Australia effort to get to the other side of the crisis.

However, it’s not just an easy ticket for any borrower to just not pay their loan if they don’t want to.

Reportedly, there are almost half a million mortgages and 216,000 business loans that banks want to start making full or part payments.

CBA CEO Matt Comyn said: “From a prudential banking perspective, it’s important to understand whether a customer will be able to repay at a later date. For customers who are directly impacted and you can assess that to be temporary, then it is reasonably easy to determine they will be able to make those payments.

If the business was in trouble pre-COVID or structural changes have occurred, then other options will need to be considered. It’s extremely difficult to determine how many businesses that will include, as we’ve seen with the announcement of further restrictions in Victoria.”

Is this good news for ASX banks?

I think it’s good that banks now have the flexibility to extend the payment holiday if they want to. The GFC in the US was terrible partly because banks were too quick to put borrowers into foreclosure. It set off a chain reaction.

Australia doesn’t have the same rules as the US when it comes to loans. But I think it’s good for the economy that the banks will continue to burden some of the strain.

However, I’m still cautious on what’s going to happen to the share prices of ASX banks. Particularly because Melbourne has gone back into lockdown which could be really tough for Victorian businesses. I wouldn’t buy bank shares. If you want financial exposure I’d prefer to go for something like Macquarie (ASX: MQG) or Magellan (ASX: MFG).

Disclosure: At the time of writing, Jaz doesn’t own shares in any of the businesses mentioned. 

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