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The non-major bank has temporarily revised its serviceability policy in response to heightened credit quality risks associated with the COVID-19 crisis.
Adelaide Bank has informed Connective brokers that it has introduced changes to its serviceability policy for Connective Select white label loans.
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Among the changes is a tightening of requirements for bridging finance applications. Effective immediately, Adelaide Bank will require all bridging finance applications to either:
- have an unconditional contract of sale on the existing security; or
- for the application to show servicing on the “peak debt” at interest-only repayments using the actual interest rate of the application, with no buffering of rate applied.
Moreover, Adelaide Bank has joined several other lenders in requiring brokers to ramp up their serviceability probes for self-employed applicants.
The non-major is requiring brokers to identify whether self-employed borrowers have been impacted by the COVID-19 pandemic.
In particular, brokers have been asked to explore:
- whether the applicant’s business has sought relief assistance from governments or lenders, and
- whether the customer’s business operates within an industry highly impacted by the COVID-19 crisis.
Self-employed applicants deemed to have been affected by the crisis will be required to provide the following supporting documentation:
- three most recent quarters of business activity statements,
- three most recent months of bank statements for the business’s main trading account, or
- a business plan or cash flow forecast as to explain how a business will continue to meet repayment obligations.
Adelaide Bank joins a number of other lenders in tightening its serviceability standards for new lending amid forecasts of a spike in defaults.
Last month, S&P Global Ratings reported that it is forecasting an 85 bps increase in credit losses across the Australian banking sector’s loan portfolio in the 2020 financial year (FY20).
The 85 bps increase, which is expected to moderate to 50 bps in 2021, amounts to approximately $29 billion in gross loans, nearly six times higher than the record low in FY19.
[Related: BOQ tightens home lending policy]
