Via the excellent Jonathon Mott at UBS:
Reporting season begins on 30th April. Will we learn anything?
Given events over the last several weeks, the financial performance of the banks during the prior six months appears of limited relevance. We are now in a vastly different economic and interest rate environment. Profit will be impacted by provisions for credit, fines, customer remediation and write-downs. So what will we be looking out for?How much will the banks provide for Bad Debts?
Under AASB 9 (IFRS 9), banks must consider a range of unbiased, probability weighted outcomes in determining the Bad Debt charge. Given timing, the banks will use overlays to top-up their Collective Provisions. This is a balancing act. If the banks are seen to under-provide the market may view them as unrealistic and imprudent. While if they are seen to over-provide, the market may be equally shocked. We believe that overlays of $1.0-$1.5bn per bank for 1H20E (in addition to the underlying charge) appear reasonable and are consistent with the numbers implied by current share prices.
