Loan deferrals to hit banks

THE unwinding of deferrals on loan repayments looms as a key risk for Australia’s big banks as they pass the halfway mark of COVID-19 support, a leading analyst says.

And the likelihood the virus has permanently shifted the habits of consumers to online shopping appears to be growing, according to separate research. It comes as official statistics show the collapse in

Australia’s export earnings from services abated in May, to languish at about a quarter the level they were at before the virus struck.

The research and statistics, released on Thursday, provide fresh detail on the lasting impact of the virus on key parts of the economy months into the pandemic. In a research report for investors, Goldman Sachs analyst Andrew Lyons said losses across the banking sector as loan repayment deferrals are unwound could prove significant if property prices fall as he expects.

At the onset of the downturn, banks offered customers deferrals on loan repayments for three months, with an option to extend for a further three months.

Customers accounting for $236 billion worth of loans — or 8 per cent of the total credit market — took up the offer.

Mr Lyons, co-head of Australian equity research at Goldman, is estimating there will be a cumulative 25 per cent slide in housing values over the next two to three years, and a 35 per cent decline in commercial property values.

That would lead to a scenario where many borrowers were in negative equity, where the size of their loans outstrip the value of their properties.

If all borrowers in negative equity were to default, losses across the sector could amount to $22 billion, Mr Lyons said.

Of the four majors, Westpac was best placed, he said, noting the relatively conservative loan-to-value profile of its mortgage book.

Separately, National Australia Bank on Thursday released results of its online sales index for May.

After surging 16.4 per cent in April, it eased just 1 per cent in May despite many retailers reopening that month after temporarily shutting their doors. In the year to May, the index grew 50.4 per cent, compared with the 5.3 per cent growth rate for the traditional retail index tracked by the Australian Bureau of Statistics.