Australia to overhaul bankruptcy laws to help firms over COVID-19

Darnell Taylor
September 27, 2020

Australia said on Friday it would ease lending standards for banks in a move created to free up credit and revive the economy, which slid into its first recession in almost 30 years due to the coronavirus pandemic.

Treasurer Josh Frydenberg said that as the country recovered from the pandemic, "it is more important than ever that there are no unnecessary barriers to the flow of credit to households and small businesses". "Across time, lenders have become increasingly risk averse and overly conservative".

ANZ Bank CEO Shayne Elliott said the move "will speed up the flow of credit during these hard economic times while still providing the necessary protections for Australians when accessing credit". "As a effect, borrowers, irrespective of their financial circumstances, have faced an ever more intrusive, hard and drawn-out approval process".

A spokesman for the Labor Party said the ditching of the lending regulations signalled that the government was backing away from promises to implement banking reforms recommended by the Royal Commission.

Shares of the big-four banks surged. In early trading, Westpac shares jumped by 6% in Australia.

The Australian Banking Association welcomed the changes.

'With the right balance, these changes will simplify lending rules while maintaining strong protections for borrowers and improving protections for those vulnerable consumers using debt management firms, small amount credit providers and consumer leases'.

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The move is a turnaround from the findings of an inquiry into misconduct in the financial system, which called for banks to more strictly follow lending rules.

Under the changes, lenders will no longer be penalized if borrowers provide misleading information on their loan applications, speeding up the credit approval process as Australia endures its first recession in 29 years.

The laws require lenders to take steps to determine if potential borrowers will be able to repay their loans in hopes of avoiding a repeat of the crisis sparked by the subprime mortgage meltdown in the US.

These moves helped push the ASX 200 benchmark higher by lunch, up some 1.58% to the 5,968 point level, by 12:19 PM.

Lenders that are now regulated by the Australian Prudential Regulation Authority will remain subject to APRA's lending standards, but will no longer be monitored by ASIC for compliance.

The new arrangements will be created to ensure credit assessment is more attuned to the borrower's needs and the credit product.

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