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
Westpac faces civil proceedings
The corporate regulator has commenced civil penalty proceedings against Westpac alleging the big four bank used misleading and unfair sales of consumer credit insurance. ...Read more

Banking
CBA to pay $7m penalty for overcharged interest
The Commonwealth Bank of Australia has been ordered to pay a $7 million penalty for charging an interest rate on business overdraft accounts that was substantially higher than what customers were advi...Read more

Banking
CBA taken to court over banking fees
ASIC has commenced civil penalty proceedings against the Commonwealth Bank of Australia, alleging that it charged clients millions in monthly fees when it was not entitled to do so. ...Read more

Banking
Big 4 bank offers $10m in grants to flood-affected customers
A big four bank has launched a $10 million Flood Support Fund to provide grants to customers and businesses in flood-affected areas. ...Read more

Banking
Guide to NSW flood financial aid: From the banks to insurers
The banks are offering customers affected by the NSW floods loan repayment deferrals, among other forms of financial aid, while the Insurance Council of Australia has declared a catastrophe for much o...Read more

Banking
APRA drops big 4 money laundering case
APRA has followed ASIC in closing its investigation into Westpac over the AUSTRAC scandal, which led to the largest corporate fine in Australian history. ...Read more

Banking
ASIC takes trading platforms to court
ASIC has launched civil penalty proceedings against CommSec and AUSIEX for “compliance failures” over a significant period of time. ...Read more

Banking
BOQ sets sights on big 4 banks with latest merger
The Bank of Queensland has announced that it will buy ME Bank for $1.3 billion in a bid to challenge the dominance of the big four banks. ...Read more

Home values up 30% (or are they); NFTs taking the world by storm, and why Keating thinks Aussies will be ‘poor’ in retirement
Listen now

Raging floods, the tech stock bubble and the ongoing SG debate
Listen now

Meet the Manager with Trilogy’s Philip Ryan: RBA rates and property price growth
Listen now

The continued property boom, ethical investing and engaging with your super fund
Listen now

Banking
Westpac faces civil proceedings
The corporate regulator has commenced civil penalty proceedings against Westpac alleging the big four bank used misleading and unfair sales of consumer credit insurance. ...Read more

Banking
CBA to pay $7m penalty for overcharged interest
The Commonwealth Bank of Australia has been ordered to pay a $7 million penalty for charging an interest rate on business overdraft accounts that was substantially higher than what customers were advi...Read more

Banking
CBA taken to court over banking fees
ASIC has commenced civil penalty proceedings against the Commonwealth Bank of Australia, alleging that it charged clients millions in monthly fees when it was not entitled to do so. ...Read more

Banking
Big 4 bank offers $10m in grants to flood-affected customers
A big four bank has launched a $10 million Flood Support Fund to provide grants to customers and businesses in flood-affected areas. ...Read more

Banking
Guide to NSW flood financial aid: From the banks to insurers
The banks are offering customers affected by the NSW floods loan repayment deferrals, among other forms of financial aid, while the Insurance Council of Australia has declared a catastrophe for much o...Read more

Banking
APRA drops big 4 money laundering case
APRA has followed ASIC in closing its investigation into Westpac over the AUSTRAC scandal, which led to the largest corporate fine in Australian history. ...Read more

Banking
ASIC takes trading platforms to court
ASIC has launched civil penalty proceedings against CommSec and AUSIEX for “compliance failures” over a significant period of time. ...Read more

Banking
BOQ sets sights on big 4 banks with latest merger
The Bank of Queensland has announced that it will buy ME Bank for $1.3 billion in a bid to challenge the dominance of the big four banks. ...Read more