(Bloomberg) -- Australian lenders are in talks with borrowers to provide relief to those struggling to meet their home-loan repayments as the Reserve Bank keeps raising interest rates, the head of the country’s main banking lobby group said.

Anna Bligh, CEO of the Australian Banking Association, told an AFR conference in Sydney on Tuesday that many customers are “starting to feel the pinch” from surging borrowing costs. The relief measures being discussed include: 

  • transferring to an interest-only loan for a brief period
  • restructuring the loan at a lower interest rate
  • lengthening the loan tenure; and
  • in some cases deferring repayments

While the measures are similar to those deployed during the pandemic, lenders are unlikely to require any capital relief from regulators this time around as their balance sheets and liquidity positions remain solid, Bligh said.

“Banks are not anticipating the sort of scale that would require some form of capital relief from regulators, but they will be using all of those tools in their toolbox and doing everything they can,” she said. 

Bligh’s remarks came ahead of data Tuesday that showed retail sales slowed as high borrowing costs and elevated inflation weighed on consumption. RBA policymakers are closely watching households’ response to the tightening cycle given they are among the most heavily indebted in the developed world. 

The RBA meets in a week’s time and Governor Philip Lowe has opened the door to standing pat to assess how the economy is tracking.

“The impact of higher interest rates will continue to intensify,” said Belinda Allen, a senior economist at Commonwealth Bank of Australia, the nation’s largest lender. “Together with negative real wages growth, this will impact households’ available cash flows.” 

Australia’s four major lenders rely heavily rely on mortgage lending for revenue and profit gains and following 10 straight rate hikes they are experiencing a slowdown in credit growth. At the same time, the broader economy is also decelerating, although RBA policymakers are hopeful a recession can be avoided.

Bligh said it will take another couple of months for borrowers to experience the full impact of the RBA’s latest quarter-percentage point rate increase in March that took the cash rate to 3.6%. 

When that happens, some home-owners who borrowed during the pandemic will see the serviceability buffer on their mortgage being breached given the RBA has already lifted rates by 3.5% percentage points. 

In Australia, a 3% serviceability buffer is applied on all mortgages to ensure borrowers can service loans during a tightening cycle.

“Now for some of those people they will have changed jobs, got a promotion, circumstances may have improved and they’ll be able to keep paying at the higher rate,” she said. “For some of those people the opposite will be the case.”

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