Banks create COVID workout ward

Banks have launched their own COVID wards for stressed companies. Stuart McEvoy/The Australian.

Australia’s top banks are understood to have launched new divisions to handle companies impacted by COVID-19, ahead of what some anticipate to be a major fallout when pandemic-related government subsidies in place end early next year.

Major Australian banks including ANZ, Commonwealth Bank, National Australia Bank and Westpac have typically had ‘bad bank’ units where businesses are placed when they are in distressed amid times of recession.

However, the understanding is that while the ‘bad bank’ units still exist, additional units have been created for companies that would typically be solid performing businesses if they had not been brought to their knees from the COVID-19 pandemic.

Examples of such cases include groups such as the listed travel agencies Flight Centre and Webjet, the country’s national carrier Qantas and Sydney Airport.

Other groups such as outdoor advertising companies like oOh!media also fit the bill, as do some retailers, shopping centre and office landlords and hospitality groups.

It comes as the Federal Government this month announced it will extend until the end of the year insolvency relief measures which were put in place from March 2020 as part of the response to the COVID-19 pandemic.

The measures were due to expire on September 25 and offered temporary relief for directors from any personal liability for trading while insolvent.

Sources say that banks remain open to lending for major corporations that are rated and private equity firms, but when it comes to small to mid-sized companies obtaining debt, they are taking a harder line.

There is also talk in the market that loans for bricks and mortar retailers are also becoming increasingly harder to come by, with ANZ and NAB said to be the only two banks offering loans in that area.

Outside of the major banks, it is believed that securing loans from smaller lenders has proved to be a near impossible feat.

While new units are said to be in place, banks are also understood to have beefed up teams relating to distressed mortgages.

Banks setting up specialised teams amid economic crises is said to be the norm during recessionary conditions in Australia.

Bad bank units were established amid the Global Financial Crisis about ten years ago and also around 2000 when airline Ansett collapsed.

However, some believe when companies enter bad bank units, it can be a death sentence for the businesses, where the banks take a hard line in getting their money back.

The situation is no doubt likely to create an opportunity for special situations funds, which are already stepping into the gap in Australia where mainstream lenders are not offering funding.

Recent examples of companies in such a situation include debt collection firms such as Pioneer Credit and Collection House, where major banks are shying away from when it comes to offering loans.

Another area is coal-related companies, where major lenders are refusing to offer credit due to concerns about exposure to what is considered an un-environmentally friendly commodity.