Via the excellent Jonathon Mott at UBS:
Two steps forward… one big step back?
With Melbourne moving to Level 4 lockdown (all non-essential businesses closed), the outlook for the Australian economy and banks has deteriorated sharply. After a strong economic bounce from May until early July, this is a clear setback. While the assumptions underpinning the banks’ overlays in their March results looked relatively conservative, this may no longer be the case, especially in Victoria. We still expect lower credit impairment charges with the June Results/Updates (from 12th Aug, see Figure 1) given limited new NPL formation as a result of loan deferrals, however banks are likely to be rewarded for provisioning prudence in this environment.