Westpac flags $1.6b loan hit
WESTPAC expects loan losses from the COVID-19 crisis to hit $1.6 billion as it takes a more gloomy view of the economy than some of its key rivals.
The nation’s second-largest bank yesterday told investors to brace for $2.24 billion in pretax impairment charges when it hands down first-half results.
About $1.6 billion of this is related to the “once-in-alifetime” COVID-19 crisis.
New accounting standards require banks to estimate future loan defaults rather than waiting for them to occur.
“The world is going through a once-in-a-lifetime health and economic crisis and we are committed to assisting as many customers as possible to bridge this shutdown period,” Westpac CEO Peter King said.
“It is, however, unfortunate that some customers will not be able to navigate the financial and economic changes of this crisis and may not reopen.”
The $1.6 billion tally is about double the $807 million National Australia Bank outlined on Monday when it brought forward its profit results by 10 days to launch a $3.5 billion capital raising and slash its dividend to 30c per share.
The latest hit at Westpac adds to the $1.43 billion in impairments it flagged earlier in the month which includes setting aside $900 million to cover a looming fine over a money laundering and child exploitation scandal.
Westpac said its latest impairment charge would have “a relatively small impact” on its common equity tier one capital ratio – a key measure of balance sheet strength in the banking industry – with an 11 basis point decrease expected.
“Having materially strengthened capital over the last decade, building significant buffers, we are well positioned to absorb this increase and respond to future developments,” Mr King said.
Westpac has been tipped as the next capital raising candidate among the big banks, given it is not as cashed up as ANZ or Commonwealth Bank which have undertaken large asset divestment programs.
The big four banks are under immense pressure as business shutdowns and job losses ripple through the economy.
Westpac said its COVID-19 loan loss impairment was based on an industry-byindustry assessment of stress that could emerge.
It warned the outbreak remained in its early stages and the impact on customers and future impacts on the bank was highly uncertain.
“While impairment provisions have begun to increase, the extent of additional charges in subsequent periods will depend on the severity and duration of the decline in economic activity and the size and effectiveness of stimulus measures,” it said.
The bank’s first-half results are expected to be released on May 4.