Bank figures reveal the truth about the coming economic storm
Published 10:48 pm 13 Oct 2020
Still don’t believe that the COVID-19 crisis has the power to crash the housing market and threaten your personal wealth? Startling figures from the major banks may just change your mind, writes DG Institute Founder and CEO Dominique Grubisa.
It’s the narrative many Australian homeowners and business operators keep telling each other. Now that COVID-19 infection rates are falling across the country, the coronavirus crisis is all but over and life will shortly be returning to normal. In a month or two, we’ll see the property market surging back up and businesses will start doing a roaring trade.
But don’t be fooled. Finance sector figures show the country’s major banks are quietly preparing for billions of dollars in housing and personal loans to go bad over the coming months as the delayed impacts of COVID-19 are felt in households across the country. Westpac and the CBA have both factored in provisions of $1.5 billion or more for loans they expect to go sour, while NAB is putting aside close to $1 billion. Collectively, the major banks are making preparations for a staggering $7 billion in loans that may never be repaid.
The figures show that while many ordinary Australians see the COVID-19 crisis as almost over, the experts in our financial institutions know otherwise and are readying themselves for the fall-out. Thousands of homeowners and small business owners are about to go broke, putting massive pressure on our economy as they do.
So, if things are so dire, why aren’t we all feeling it yet? How can spring property sales across the country be so buoyant, with Sydney recording a 72-per cent clearance rate just last weekend? Why haven’t thousands of businesses gone bankrupt?
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The answer is that the government and banking sector have, up until now, put measures in place to stop the bottom falling out of the economy. After nearly a million Australians lost their jobs to COVID-19, the federal government introduced the JobKeeper scheme which has paid 3.5 million workers a subsidy of $1500 a fortnight for the past six months. Federal and state governments have offered hundreds of millions more in business subsidies, special grants and assistance schemes to help companies weather the corona storm. Special ‘safe harbour’ concessions for company directors have also allowed them to keep trading even though their businesses are technically insolvent.
The banking sector, meanwhile, has allowed a full nine percent of housing and small business loan holders to defer repayments on their loans, with $240 billion of loans being put on hold. This deferment was initially intended to run for six months, but an extension was then granted extending the payment holiday until January 2021.
But a day of reckoning is now looming as support schemes are wound down and the effects of Australia’s recession really take hold. JobKeeper payments are being cut back as of this month, with the scheme to be stopped early in the new year.
With the mortgage deferment period rapidly drawing to a close, banks are writing to customers warning that they need to be ready to resume payments. Some are suggesting customers dip into their superannuation to cover what they owe.
If the predictions of the banks prove correct and $7 billion in loans go bad, there will be major repercussions for the whole economy. While low levels of housing stock have so far helped keep property markets up, a tsunami of forced sales from homeowners unable to meet payments could set prices into freefall. The same applies to the small business sector where thousands of zombie businesses are set to fail in the new year, seriously impacting the businesses to whom they owe money – and the wider economy.
Circumstances such as these are worrying for anyone whose wealth and financial position is dependent upon a stable economy and being able to repay their mortgage and other loans. In such times, it can pay to proactively protect your assets. By acting before the crash, you can take measures to ensure creditors aren’t able to strip away your home and other valuables should you find yourself in difficult times.
The DGI institute’s Master Wealth Control service provides individuals with a means to lock their assets away against certain creditors should an economic crisis arise. Relying on the so-called ‘man-of-straw’ strategy famously employed by Britain’s Vestey family, it provides a vault to protect assets, be they held as property, shares or in other forms.
To find out more, book an appointment with one of our asset specialists.
Lawyer, Asset Protection Specialist and Property Educator
Dominique Grubisa is a practising legal practitioner with over 22 years of legal and commercial experience. She is a property investor and developer, an entrepreneur with businesses in Australia and Southeast Asia, a speaker, educator, writer and published author. You may contact Dominique at email@example.com
This column has been written for general information purposes only. It is not intended as legal, financial or investment advice and should not be construed or relied on as such.