Borrow
Banks’ losses could reach $30 billion
The big four banks are expected to lose up to $30 billion, as the “team Australia” mantra sees loan deferral payments for businesses and mortgagors take billions off the banks' bottom line.

Banks’ losses could reach $30 billion
The big four banks are expected to lose up to $30 billion, as the “team Australia” mantra sees loan deferral payments for businesses and mortgagors take billions off the banks' bottom line.

In a new analysis, S&P Global Ratings has reported that credit losses for the big four banks will be six times larger than in 2019 as the pandemic means businesses and households are unable to meet payment requirements in the future.
In our base case, we now forecast that the Australian banks’ credit losses in the year to 30 June 2021 will rise to about 85 basis points of gross loans and advances (totaling about $29 billion for the entire Australian banking system), nearly six times from their record low in fiscal 2019.
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.
According to S&P, much of the deterioration in credit quality would come after social distancing measures have been lifted, adding that borrowers would enter hardship in the absence of fiscal support and loan relief measures.
“We expect that a number of businesses and households are likely to struggle to meet their financial obligations once the restrictions to contain the coronavirus outbreak are lifted, when the moratorium on debt servicing ends, and the government reduces fiscal support,” S&P noted.
Major banks well placed to absorb increased credit losses within earnings
S&P Global Ratings’ Scenario and Sensitivity analysis suggests that “Australia’s major banks retain sizeable headroom within their earnings to absorb our forecast increase in credit losses in conjunction with a large contraction in interest spreads and fee income”.
The news comes as two of Australia’s big four banks announce major cash profit falls due to the deferral of loans and credit risks.
ANZ’s cash profits fell 62 per cent, while statutory profit after tax fell 51 per cent, driven primarily by credit impairment charges of $1.674 billion that included increased credit reserves for COVID-19 impacts of $1.031 billion.
“This was a reasonable result, given the tough trading conditions being experienced before the crisis hit,” said CEO Shayne Elliott. “We maintained our focus on productivity and continued to target balance sheet growth in our preferred segments. Loan losses heading into March were at historically low levels, and we are well positioned to manage the higher credit charges taken as a result of COVID-19.”
NAB’s cash earnings fell 51 per cent to $1.44 billion from 1H19 as credit impairment charges increased to $1.161 billion. Half-year charges included $828 million of additional collective provision forward-looking adjustments, of which $807 million reflects potential COVID-19 impacts.
“Our result for the half-year ending 31 March has been materially impacted by the COVID-19 pandemic, with cash earnings (ex. large notable items) declining 24.6 per cent relative to the first half of 2019,” CEO Ross McEwan said in a letter to shareholders. “We entered this crisis in a robust position, with our capital significantly strengthened over recent years.”
About the author

About the author


Banking
ANZ sued for allegedly misleading customers
The corporate regulator has commenced civil proceedings in Federal Court. ...Read more

Banking
Banks report $14.4bn profit amid pressure on net interest margins
Australia’s major banks have reported a significant boost to their bottom lines and returns in the first half of the 2022 financial year, signaling sector-wide resilience despite persistent pressure...Read more

Banking
Major banks report rising profits
NAB and ANZ announced their half-year results this week. ...Read more

Banking
Modernisation of direct debit system suffers setback
According to the Reserve Bank (RBA), several major banks will not be able to meet the current timeline for the launch of the PayTo service. ...Read more

Banking
Australians' trust in digital providers has decreased in last five years
Australians have little trust in organisations keeping their information secure, but the financial services industry still sits atop the list. ...Read more

Banking
Commonwealth Bank chairman to retire in August
The Commonwealth Bank (CBA) board has announced a successor. ...Read more

Banking
Westpac responds to $113m penalty
The big four bank has responded to the penalty handed down last week. ...Read more

Banking
Westpac ordered to pay $113m for ‘widespread compliance failures’
Westpac has been ordered to pay penalties in the amount of $113 million for widespread compliance failures across multiple businesses, including Westpac’s banking, superannuation, wealth management ...Read more

Wrapping up an eventful 2021
Listen now

What Omicron means for property, and are units right for first-time buyers? What is equity crowdfunding? Are industry super funds tapping into member funds to save their skins?
Listen now

Will housing affordability improve in 2022? Will buy now, pay later become the norm? Why are Aussies staying in failing super products?
Listen now

Who really benefits from crypto ETFs? How will the RBA respond to rising inflation? Could a mandate help address unpaid super?
Listen now

Banking
ANZ sued for allegedly misleading customers
The corporate regulator has commenced civil proceedings in Federal Court. ...Read more

Banking
Banks report $14.4bn profit amid pressure on net interest margins
Australia’s major banks have reported a significant boost to their bottom lines and returns in the first half of the 2022 financial year, signaling sector-wide resilience despite persistent pressure...Read more

Banking
Major banks report rising profits
NAB and ANZ announced their half-year results this week. ...Read more

Banking
Modernisation of direct debit system suffers setback
According to the Reserve Bank (RBA), several major banks will not be able to meet the current timeline for the launch of the PayTo service. ...Read more

Banking
Australians' trust in digital providers has decreased in last five years
Australians have little trust in organisations keeping their information secure, but the financial services industry still sits atop the list. ...Read more

Banking
Commonwealth Bank chairman to retire in August
The Commonwealth Bank (CBA) board has announced a successor. ...Read more

Banking
Westpac responds to $113m penalty
The big four bank has responded to the penalty handed down last week. ...Read more

Banking
Westpac ordered to pay $113m for ‘widespread compliance failures’
Westpac has been ordered to pay penalties in the amount of $113 million for widespread compliance failures across multiple businesses, including Westpac’s banking, superannuation, wealth management ...Read more