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    APRA Reviews Repayment Deferral Plans, Identifies Best Practices

    September 22, 2020

    APRA has concluded its review of the comprehensive plans of authorized deposit-taking institutions for the assessment and management of loans with repayment deferrals. In a letter addressed to these institutions, APRA encourages these institutions to consider the "better practice(s)" identified during the review of submitted plans. The identified practices span areas such as governance and oversight, customer engagement and contact strategies, credit assessment processes, and credit management and resourcing.

    APRA acknowledges that preparation and submission of these plans represents a significant milestone in the transition of borrowers, who have been provided a repayment deferral, back to making repayments where possible. In the letter, authorized deposit-taking institutions are are encouraged to consider the following areas of better practice:

    • Governance and oversight. Better practice provided for regular operational reporting to senior management to enable timely escalation of issues that may require management attention and oversight of progress against the implementation of the plan by the Board/Board Committee.  
    • Customer engagement and contact strategies. Most plans appropriately allowed for sufficient time to contact customers and arrive at a credit decision prior to the expiry of the deferral. Better practice incorporated a series of contacts, using multiple contact media over an extended period of up to six weeks prior to deferral expiry. Additionally, most plans appropriately and definitively considered the treatment of loans for uncontactable customers. Where repayments are to be recommenced for these customers without contact, better practice involved close monitoring the performance of these loans and additional contact strategies where payments are subsequently missed.
    • Credit assessment processes. As expected, plans included clear and well-articulated credit assessment processes in circumstances where the borrower requires additional assistance in terms of restructuring loans, extending the deferral, or hardship/default. Better practice incorporated strong quality assurance processes and controls around customer conversations and credit assessment decisions to ensure consistency in customer outcomes were implemented. Better practice also included appropriate controls to detect system and process errors and ensure that borrowers receive assistance in a manner that is consistent with that which has been presented and offered to them by the institution.
    • Credit management and resourcing. While material additional resourcing has been committed by many institutions to implement their plan, this was frequently based on best estimates of volumes and time taken for calls, with scope for material variation to occur. Better practice plans incorporated strong operational reporting capability, with regular oversight by Executive Management, supported by contingency plans for identification, training, and allocation of additional resources at short notice, should the need arise. 


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    Keywords: Asia Pacific, Australia, Banking, COVID-19, Governance, Payment Deferrals, Credit Risk, Basel, APRA

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