ABA's savings buffer in effect as demand for hardship assistance declines

The Australian Banking Association (ABA) is introducing a savings buffer as part of its revamped hardship support guidelines as the rate of customers seeking hardship assistance continues to plummet from its peak in early August.

Nearly 69,000 customers availed of hardship assistance since July 8 – 27,000 of which are home loan deferrals while 4,000 are business loan deferrals. There have been 12,000 approvals since last month, making it the smallest increase since the banking industry rolled out its second wave of relief measures in July.

Anna Bligh, chief executive officer of ABA, said it was “heartening” to see people bounce back as lockdowns and border restrictions continue to lift across the country.

“Banks have been on hand to assist their customers throughout the pandemic,” Bligh said. “The majority of hardship approvals came from customers in NSW and Victoria, which is obviously no surprise given the recent lockdowns. However, we did see thousands of customers across the rest of Australia seek support and talk to their bank.”

To provide more support for customers with financial difficulties, ABA has recently reviewed and revamped the industry guidance for member banks. The new Financial Difficulty Guideline includes a framework for banks to balance the need for a standardised access to assistance as well as have flexibility in mind when responding to each unique circumstance.

The new “savings buffer” initiative enables a customer on a payment plan to have a small amount of funds set aside by the bank for unexpected expenses. All banks are expected to provide a savings buffer when calculating for financial hardship agreements by the end of 2023.

Westpac was among the first to follow ABA’s guidelines in May. Catherine Fitzpatrick, director of customer vulnerability and financial resilience at Westpac, said that 535 customers have availed of the savings buffer since it was introduced.

“The savings buffer is a short-term strategy to help customers manage their finances used in conjunction with our existing hardship support,” Fitzpatrick said. “We have been really encouraged by the results so far and are already seeing less customers falling back into repeat hardship.”

The savings buffer is used in conjunction with Westpac’s existing hardship support, which may include repayment deferrals, interest rate reductions, loan-term extensions, and referrals to financial counsellors.