Bendigo and Adelaide Bank makes $148m coronavirus provision

Bendigo and Adelaide Bank has made a further $148.3m provision for the impact of COVID-19, as it predicts a ‘slower’ recovery.

Bendigo and Adelaide Bank is forecasting a “slower” recovery. Picture: AAP

Bendigo and Adelaide Bank is bracing for higher lending losses from the COVID-19 downturn, setting aside a further $148.3m as the regional lender predicts a “slower” recovery.

The bank said it would increase its collective provision and fiscal 2020 credit expense by $127.7m and the general reserve for credit losses by $20.6m.

“The bank has not assumed a sharp recovery in the adopted economic outlook, but rather a slower recovery with probabilities biased to the downside,” Bendigo said in an update to investors.

“The increase in the collective provisions are based on the bank’s view of the impacts of COVID-19 and do not reflect any deterioration in observed credit quality.”

The update came as the nation’s banking regulator on Thursday issued new figures which said value of loan deferrals across the entire banking sector for businesses and households has hit $250bn.

Bendigo’s increased provision has reduced the group’s common equity tier one capital ratio by 40 basis points to 9.3 per cent. However its current CET1 position was still above the Australian Prudential Regulatory Authority’s “unquestionably strong” benchmarks.

Bendigo Bank managing director Marnie Baker said the bank had helped more than 20,000 customers facing hardship during the pandemic shutdown.

“We are very well placed, driven by our longstanding and prudent risk appetite settings, increased credit provisioning and a strong balance sheet and capital base,” Ms Baker said.

“We are continuing to provide credit to our customers, both new and existing, recognising the role we play in supporting the economy, our customers, partners and communities.”

As at the end of April , more than 20,000 Bendigo residential and commercial customers had requested COVID-19 support loans offered by the bank, totalling to $6.3bn.

That total included $4.6bn to 16,267 account holders in the form of either mortgage or personal loans and 4144 commercial accounts have accessed $1.7bn, through Bendigo’s business support package.

Bendigo Bank’s provisions are based on the assumption that the economic impacts from the virus will induce a lower GDP, higher rates of unemployment and a reduction in residential and commercial property prices.

Brokerage UBS believes the increase in provisions will likely prompt Bendigo to defer its full year dividend, expecting the bank to be able to make payment in the next financial year at 34 cents per share.

“Regional banks appear more leveraged to the deterioration in the economic environment this cycle,” UBS analysts led by Jon Mott said. “While the GFC saw large institutional losses by the major banks, this downturn is more likely to be broad-based across (small and mid sized business) and consumers, especially as asset prices fall.”

The brokerage has retained a neutral rating for the bank’s stock, with a 12-month price target at $6.50 per share.

Bendigo Bank ended Thursday’s session up 4.1 per cent at $6.55 per share.

UBS also flagged the increased provisions has caused a 12 per cent decline in its end of financial year earnings estimates.

Bendigo Bank has flagged a slight increase in arrears in its business and agribusiness loan portfolios. It said 45.4 per cent of the bank’s commercial portfolio was exposed to the agricultural industry.

The bank temporarily suspended arrears collection activities, to shift resources to assist customers during the pandemic.

Bendigo last month withdrew its outlook for the second half of its fiscal year due to uncertainty triggered by the coronavirus pandemic. However, it said its balance sheet and capital position were strong following the completion of a $250m institutional placement and $45m share purchase plan earlier this year.

Australia’s banking sector has been placed under pressure throughout the shutdown, as a low interest rate environment and deferrals on loans through hardship measures, places greater stress on interest income.

Bendigo Bank noted its tier two capital position will remain unchanged, which was 13.77 per cent as at March 31.

The bank also said its two-year move away from real estate construction and development lending has assisted in improving the risk profile of its loan portfolio.

It said 76 per cent of the bank’s portfolio was held within residential lending, while 20.4 per cent could be attributed to commercial lending.