Morgan Stanley has predicted the major banks will record total impairment charges of around $2.5 billion in the September quarter.
Analysts from the investment bank have tipped they expect to see only a modest deterioration in underlying loss rates and think there will be more focus on the status of loan repayment deferrals.
Westpac is expected to have the largest impairment charge of $693 million in the September quarter, following its $826 million in the prior June quarter.
NAB follows, with an expected charge of $662 million, following $570 million in June while the analysts have calculated ANZ will record impairment of $651 million, following $500 million in the prior quarter.
CBA is expected to take the smallest hit: $500 million in the September quarter, following $294 million in June.
“Industry feedback suggests that deterioration in credit quality has only been modest to date due to the combination of JobKeeper, loan repayment deferrals and temporary amendments to insolvency laws,” the Morgan Stanley analysis stated.
“There is ‘no real precedent’ for the potential impact of COVID-19 on businesses, but the magnitude is unlikely to be clear until mid-2021. In our view, this means banks’ decisions on provision coverage will be key drivers of near-term loan loss trends, while the status of loan repayment deferrals should be closely scrutinised.”
The analysts also have highlighted potential for ANZ and NAB to have larger-than-forecast overlays and higher loan loss challenges.
Westpac and CBA to date have raised larger overlays, with around $1.9 billion and $1.5 billion respectively, compared to ANZ’s $1 billion and NAB’s $800,000 and they have higher collective provision coverage.
Sarah Simpkins is a journalist at Momentum Media, reporting primarily on banking, financial services and wealth.
Prior to joining the team in 2018, Sarah worked in trade media and produced stories for a current affairs program on community radio.
You can contact her on [email protected].