The Australian Prudential Regulation Authority (APRA) has issued guidance to all authorised-deposit taking institutions on the appropriate regulatory reporting methodology for loans where hardship concessions have been granted.

Whilst APRA acknowledges ADI’s grant hardship variations to credit contracts for borrowers experiencing temporary financial difficulty, such as a reduction in the interest rate or payment, lengthening of loan maturity, or full or partial deferral (capitalisation) of interest for a temporary period, APRA has reminded ADIs of the appropriate regulatory reporting treatment and the supporting APRA statistical returns for consumer loans (residential mortgages, credit cards and other personal loans) that are granted hardship concessions.

APRA also expects ADIs to monitor trends in requests for, and approvals of, hardship concessions and to conduct regular assessment of the default and loss characteristics of these loans.

APRA expects ADIs to monitor key metrics such as: number, dollar amount and reasons for new requests for hardship concessions, by product type; number, dollar amount and types of new and outstanding hardship concessions granted; and cure rates, provisions and ultimate loss rates on hardship concession loans.

ADIs are expected to adopt loan-loss provisioning methodologies for loans granted hardship concessions that recognise the higher risk status of these loans and the increased likelihood that they may result in losses for the ADI.