Australian banks

MacroBusiness covers Australian banks from the perspective of their macro-economic role, as political economy actors, as investment propositions and in terms of financial stability and capital adequacy. Australian banks have played a crucial role in inflating the Australian property bubble, exist within an utterly privileged position as “too big to fail” institutions and operate within a deeply distorted financial architecture that has Australian tax payers well and truly on the hook in the event of trouble. MacroBusiness seeks to define this role for investors as well as change it in the name of the Australian national interest.

36

Mortgage repayment cliff beckons

A Senate committee has been told that businesses and households have now deferred around $250 billion worth of loan repayments due to the coronavirus pandemic. However, Australian Prudential Regulation Authority (APRA) chairman Wayne Byres conceded that some customers will not be able to repay their loans when they are required to resume repayments: Australian Prudential

4

Scomoprime brims over

Via Banking Day: Demand for guarantees under the Morrison Government’s First Home Loan Deposit Scheme now exceeds capacity after the limit of 10,000 borrower reservations was reached last week. Data collated by the National Housing Finance and Investment Corporation – the government agency tasked with managing the program – show that 5,500 guarantees have been

2

Genworth downgraded on Scomoprime

Can anyone say “sovereign risk”: S&P Global Ratings today said it has revised its outlook on Genworth Financial Mortgage Insurance Pty Ltd. (Genworth Australia) and Genworth Financial Mortgage Insurance Pty Ltd. (NZ Branch) to negative from stable. At the same time, we affirmed our ‘A’ insurer financial strength and issuer credit ratings on both entities. We also affirmed the rating on Genworth Australia’s subordinated

69

Banks tighten screws on mortgage borrowers

The Australian Bankers Association (ABA) has released figures showing that 429,000 mortgages have so far been deferred – one in every 14 mortgages – totaling $153.5 billion: The Australian Banking Association today released new figures which showed 429,000 mortgages had been deferred totalling $153.5 billion. The figures take the total number of loans deferred to

1

The battle to lift the yield curve

Via the excellent Damien Boey at Credit Suisse: Real yield curve model points to steepening, but … We define the Australian real yield curve as the 10-year inflation-indexed bond yield minus the real 3-month interbank rate, using the inflation swaps curve to profile long- and short-term inflation expectations. Our proprietary model of the real yield curve

0

UBS: Banks need much more capital

Via the excellent Jonathon Mott at UBS: Results were all about the Balance Sheet. P&L takes the back-seat 1H20 reporting season was disappointing, in our view. Although sector NPAT fell 45%, the focus was on capital and provisioning build as the banks prepare for a recession. COVID-19 overlays were at the lower end of expectations,

11

CBA: Mortgage volumes holding up

From Banking Day: Weekly application volumes trended lower over March, April and May “relative to the peak volumes experienced in February,” Commonwealth Bank said in a trading update yesterday. On the other hand the bank said “application volumes remain strong and are around 10 per cent higher than the same period last year,” perhaps confounding

4

Fitch downgrades Genworth

Drip, drip, drip: Fitch Ratings – Sydney/Singapore – 12 May 2020: Fitch Ratings has downgraded the Insurer Financial Strength (IFS) Rating of Genworth Mortgage Insurance Australia Ltd’s (GMA) main operating subsidiary, Genworth Financial Mortgage Insurance Pty Limited (GFMI) to ‘A’ (Strong) from ‘A+’ (Strong). The Outlook is Negative. KEY RATING DRIVERS The rating actions are

1

NAB most exposed to SME melt

Via Banking Day: Macquarie Securities has reviewed the institutional loan portfolios of the major banks, using a number of quality screens to assess their strengths: the rate of growth in the lead-up to the downturn; the proportion of listed versus unlisted companies; the proportion of companies with credit ratings; the average credit rating across the

6

CBA warns but keeps dividend

CBA out with its update: So, profits down 23%. It’s sold Colonial First State to KKR. NIM down despite big deposit flows. Provisions up solidly but not enough. Capital not strong at 10.7% but it’s in line with the other banks so I guess that’s why it has been allowed to continue the dividend. That

22

ME Bank reverses course

Fresh from ME: ME Bank to change back redraw limits on home loans In response to customer feedback ME Bank has decided to change back home loan redraw limits for any customers who want it. The bank recently made changes to some older, legacy home loan products which resulted in around 4 per cent of

35

Depressionberg’s SME Guarantee Scheme appears to be a joke

It was announced with great fanfare: The Coronavirus Small and Medium Enterprises (SME) Guarantee Scheme will support up to $40 billion of lending to SMEs (including sole traders and not-for-profits). Under the Scheme, the Government will guarantee 50 per cent of new loans issued by eligible lenders to SMEs. The Scheme will enhance lenders’ willingness and ability to

36

ME Bank sinks into disasterous blunder

Via Banking Day: The customer relations crisis now engulfing Members Equity Bank is exposing much more than a breakdown in communication with home borrowers – it is also opening a window to a crude and inadequate approach to risk management. While the bank acknowledges that it failed to properly give customers notice that their capacity

5

Life in mortgages yet?

Via CoreLogic’s weekly leading indicators. Listings are getting hammered: There is some confusion around this with wider media reports suggests huge numbers of unlisted properties for sale. Mortgage origination is hinting at stability: A decent correction but still above last year’s Hayne RC lows. Is there life in the old girl yet? Full report.

42

ME Bank invites a run on itself

Via Adele Ferguson on the weekend: The boutique bank owned by the industry superannuation sector has blindsided its customers by removing cash from accounts linked to home loans during a pandemic that has increased financial uncertainty. Members Equity Bank, which is owned by 26 major super funds linked to big unions and markets itself as

9

Westpac drops latest bank shocker

Westpac out with the latest bank shocker More on the charge: Profit smashed. CET1 at 10.8% is only OK for now. Still, it’s solid start to building provisions thanks to no dividend. I wouldn’t expect it come in the second half either. One positive was NIM holding up. Another is that new CEO Peter King

2

ASIC slaps down credit cavalier, Evil Anna

Via Banking Day: The Australian Securities and Investments Commission has cautioned lenders not to make too many assumptions about how quickly consumers’ income will recover post-pandemic when making loan application assessments. ASIC has published a letter it sent to the Australian Banking Association in response to a series of questions from the ABA about the

13

ANZ warns, defers dividend

Via ANZ: More: And more: CET1 capital got belted but with dividend deferral it’s avoided having to raise capital. I very much doubt that that dividend will ever see the light of day given its loan loss provisions are still far too low and still think it will need capital later this year.

32

Huge bank losses ahead

The AFR has the wrap: Banking analysts fear that if the COVID-19 crisis worsens, the cost to the big four banks of bankrolling “Team Australia” could exceed the $10 billion estimated for this year and $35 billion over three years. Many business customers stung by the economic shutdown are expected to struggle to repay debts