Loan deferrals another $4bn in bank profits gone

Via Banking Day:

Extended loan repayment deferrals could cost the big banks anywhere from A$700 million to $1.1 billion in lost revenue, according to new analysis.

Macquarie Securities said the extension of loan repayment deferrals for another four months, along with the extension of APRA’s regulatory concessions, gives the banks extra time to deal with issues, including the opportunity to restructure loans. And more customers are likely to be able to return to employment.

Banks have more opportunity to resolve issues without putting customers into default, which would otherwise result in a sizeable rise in risk-weighted asset density and hence capital intensity.

Despite the positive aspects of the extension, Macquarie expect the increase in arrears to be “meaningful” as customers come off deferrals.

…Should the major banks offer ongoing deferrals to 25 per cent of the customers currently on deferrals, this would translate to $350 million revenue impact for ANZ, $549 million for Commonwealth Bank, $501 million for NAB and $493 million for Westpac.

If the banks offer ongoing forbearance to half their current deferrals, the revenue impact would be $714 million for ANZ, $1.1 billion for CBA, $1 billion for NAB and $986 million for Westpac.

If the banks offer a significant number of customers the option of restructuring their loans, such as switching to interest-only payments for a period of time or cutting the interest rate, the impact on revenue would be less but it would be more prolonged.

Given Australia’s choice to enter endless virus purgatory (suppression by another term) you can expect these numbers to land at the worse end of the spectrum.

David Llewellyn-Smith
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