Risks emerging around redraw accounts, APRA finds.

13 March 2020

If you have a redraw facility on your home loan or an investment property loan, please read this email carefully. Last week, the financial regulator APRA raised concerns with ME Bank regarding having made operative changes to their customers’ redraw accounts without notice. You can read one of the news stories here.

Responding to the coronavirus pandemic, and the resulting economic impact has impacted banks considerably. Most have seen a downturn in lending. Most have provided affected customers with repayment holidays. Many have taken substantial balance sheet provisions for what they see as looming defaults. While APRA has allowed some concessions to liquidity buffer requirements and all face the prospect of having to address their balance sheets in due course. All of the majors have had their credit outlook ratings cut by S&P recently – and there could be a further downgrade if the current situation does not improve.

What might happen

While we have no evidence of banks preparing to restrict the ability of customers to access their redraw, it seems wise to take precautionary measures, nonetheless. One thing seems for sure if a lender is going to decide to restrict access, they will likely do so without notice.

As such, we suggest you consider the matters and actions set out below if you have a redraw facility. Please note that this is general advice only and does not take into account your circumstances. Before acting on this advice, please consider it carefully in light of your situation and feel free to consult me.

What should I do or consider:

If you consider the redraw as your liquidity buffer or have set it aside for a planned or unexcepted purchase, investment, or expenses – you should consider redrawing the required amount (or even your maximum redraw) today.

If you also have an offset account, you could put this money in your offset account.

If you do not have an offset account, you could put this money in your savings account. The interest you are paying will increase, so you should consider this carefully.

The information above is general advice, and feel free to discuss more considering your situation.