Borrow
Outlook turns negative for mutual banks
An investor service has revised its outlook for mutual banks to negative, as the economic fallout of the COVID-19 pandemic continues.
Outlook turns negative for mutual banks
An investor service has revised its outlook for mutual banks to negative, as the economic fallout of the COVID-19 pandemic continues.
Moody’s Investor Service has announced that it has revised its outlook for Australian mutual financial institutions to negative, due to weakened economic activity and rising unemployment weighing on asset quality, profitability and capitalisation throughout the rest of this year and into 2021.
Moody’s analyst Tanya Tang stated that due to a heavy focus on residential mortgages, the mutual sector is “heavily exposed to employment and housing market conditions”, meaning changes in Australians working situations will hurt the bank.
According to Moody’s, households are facing significant financial stress with residential mortgage loans that require repayment deferrals surging by between 5-10 per cent of mutual financial institutions’ mortgage books.
However, eventual loan losses will be limited by generally conservative underwriting standards across the mutual sector, according to the investor service.
Further, Moody’s expects reported nonperforming loan (NPL) ratios to rise once lenders start to lift their six-month mortgage deferral periods for borrowers in financial distress, which have been in place since March 2020.
According to Moody’s, NPL ratios in the mutual sector will likely remain below Australia’s banking industry average, due to their lower-risk business models that are focused on residential asset-backed finance.
Yet mutuals with heavier exposure to the most affected regions or sectors may need to increase provisions more than their peers, according to Moody’s.
At the same time, deposit growth will continue, underpinning mutuals’ funding.
“A steep increase in credit costs and narrowing net interest margins will weigh on profitability and, combined with growing capital consumption from weaker asset quality, will pressure capital ratios,” Ms Tang noted.
The investment analysis highlights if Australia’s macroeconomic outlook improves mutuals could be revised to stable, based on better than expected economic recovery and employment figures.
“Moody’s baseline scenario is that coronavirus-driven economic disruptions will continue through the second quarter of 2020, followed by a modest recovery starting in the second half and continuing through 2021,” the report stated.
“Due to the lagging impact of an economic recovery on employment and household incomes, the mutual sector is likely to face an extended recovery in asset quality.”
About the author
About the author
Banking
How sneaky fees could be costing you hundreds
As many as a quarter of Australians are being stung with unknown, unfair or incorrect banking fees, with the costs adding up during the COVID-19 pandemic, an expert has revealed. ...Read more
Banking
Westpac hit with biggest fine in corporate history
Australian banking and financial services giant Westpac has reached an agreement with AUSTRAC to pay $1.3 billion for breaching anti-money laundering and counter-terrorism financing laws. ...Read more
Banking
6 ways to know you need a new bank
Unhappy with your current bank? Here’s how to know if you need to make a change. ...Read more
Banking
The banks beating the big 4 when it comes to customer satisfaction
Midsize banks are the biggest winners in a new survey of bank customer satisfaction. ...Read more
Banking
‘There’s no shame in deferring payments’
Deferring mortgage repayments is “a lesser evil” than having to sell property in the current market if you can hold off, a mortgage broker has advised. ...Read more
Banking
Standing on the shoulder of giants: How Australia’s fintechs can tap into open source
Australia has developed a vibrant fintech scene, which, in one year alone, grew by a staggering 37 per cent. The surge has ushered in a new era of financial products and services, from fully online ho...Read more
Banking
Billion-dollar bank blowout for fees for no service
To date, six of Australia’s largest financial institutions have reported a need to return more than $1 billion in compensation to customers who suffered as a result of fees for no service or non-com...Read more
Banking
Are bank branches becoming a thing of the past?
Banking may never be the same post-pandemic, with a new survey showing Australians have made some pretty drastic changes to the way they use and move money. ...Read more
Banking
How sneaky fees could be costing you hundreds
As many as a quarter of Australians are being stung with unknown, unfair or incorrect banking fees, with the costs adding up during the COVID-19 pandemic, an expert has revealed. ...Read more
Banking
Westpac hit with biggest fine in corporate history
Australian banking and financial services giant Westpac has reached an agreement with AUSTRAC to pay $1.3 billion for breaching anti-money laundering and counter-terrorism financing laws. ...Read more
Banking
6 ways to know you need a new bank
Unhappy with your current bank? Here’s how to know if you need to make a change. ...Read more
Banking
The banks beating the big 4 when it comes to customer satisfaction
Midsize banks are the biggest winners in a new survey of bank customer satisfaction. ...Read more
Banking
‘There’s no shame in deferring payments’
Deferring mortgage repayments is “a lesser evil” than having to sell property in the current market if you can hold off, a mortgage broker has advised. ...Read more
Banking
Standing on the shoulder of giants: How Australia’s fintechs can tap into open source
Australia has developed a vibrant fintech scene, which, in one year alone, grew by a staggering 37 per cent. The surge has ushered in a new era of financial products and services, from fully online ho...Read more
Banking
Billion-dollar bank blowout for fees for no service
To date, six of Australia’s largest financial institutions have reported a need to return more than $1 billion in compensation to customers who suffered as a result of fees for no service or non-com...Read more
Banking
Are bank branches becoming a thing of the past?
Banking may never be the same post-pandemic, with a new survey showing Australians have made some pretty drastic changes to the way they use and move money. ...Read more
More articles
Website Notifications
Get notifications in real-time for staying up to date with content that matters to you.
