The rush to withdraw retirement savings, under an emergency scheme to provide financial relief from the coronavirus crisis, is already running much harder than government estimates.

This has weighed on equities, especially shares of widely-held banks which Credit Suisse found lag the broader market by 9%, as funds sell assets to pay customers.

A simultaneous jump in debt repayment has analysts worried the money is mostly headed for creditors, without reaching the real economy, and that the repayments dent the loan books of the country's largest lenders when they need it least.

"People are using the proceeds from early withdrawals to pay back debt, and debt is money," said Credit Suisse's Australian strategist Damien Boey.

"So debt repayment is destroying money supply at the margin, while the government and (central bank) are trying to create it...all of this looks bad for the banks, already dealing with high unemployment ... and weakness in the housing market."

In the three months since authorities allowed access to pension accounts, some 2.8 million applications have been made to withdraw A$25.3 billion ($18.1 billion) in savings.

A second lockdown in Melbourne, where COVID-19 cases are rising, will likely accelerate withdrawals. The scheme, initially expected to run until September, has nearly reached the original A$27 billion drawdown estimate and was extended on Thursday.

Sydney journalist Sebastian van der Zwan, a New Zealander, turned to his superannuation early after finding himself unable to access welfare payments available only to citizens.

"I was stood down without pay indefinitely and my landlord refused to give me rental relief," he told Reuters. "I had no idea where I was going to get money from to pay rent or feed myself."

DOESN'T GET EASIER

At the same time as money has begun to flow, personal debts dipped. Central bank payments data showed a record 7% or A$1.9 billion drop in interest attracting credit card balances in May.

The value of mortgage refinancing also hit the highest on record that month, while total credit fell for the first time in a year.

To be sure, such repayments likely head off some defaults, and not all the money is going into debt relief. Total withdrawals so far are less than 1% of Australia's A$3 trillion pension pool.

In a country where four banks comprise a fifth of the benchmark equities index and they run the biggest mortgage books in the world, relative to other income streams, their fate rests very much with retail customers.

"It's a good thing if people are paying their debts - but it's a bad thing in that it does mean your loan book starts to shrink," said Omkar Joshi, portfolio manager at Opal Capital Management in Sydney, who is steering clear of the big banks.

($1 = 1.3984 Australian dollars)

By Tom Westbrook and Scott Murdoch