Focus on real unemployment at MyState Bank

Lenders watch ‘real unemployment’ levels, as bank customers brace for the worst.

MyState CEO Melos Sulicich. Picture: SAM ROSEWARNE.

MyState Bank chief executive Melos Sulicich says lenders are keeping a close watch on real unemployment levels during the second wave of COVID-19, as bank customers brace for the worst.

Mr Sulicich has concerns about how Victoria will fare given the spike in COVID-19 infections in the state, and expects Australia’s first recession in almost three decades will be “moderate to deep”, with the economy only emerging slowly from the contraction.

“We’re all concerned about real unemployment and what real unemployment will be by the end of the year,” he said, noting unemployment had swelled to its highest level since the 90s.

He said the “only silver lining” was that the pandemic impact was “probably not going to be as bad as we initially thought”.

The federal government has said it expects the jobless rate to peak at 9.25 per cent in the December quarter. But the effective unemployment rate — considered to be the clearest indicator of how many people are not working during the pandemic — is projected to be 7-10 per cent by the year’s end after peaking at 15 per cent in April.

The banking sector is checking in with borrowers linked to almost 800,000 loans that have had their repayments paused for up to six months due to the pandemic. The Australian Prudential Regulation Authority has said a further four months is available on repayment pauses — given it has signed off on favourable capital treatment — but only to those borrowers who genuinely require it.

Mr Sulicich said he remained hopeful when borrowers reached the six-month point a “reasonable percentage” would choose to restart loan repayments. Still, some customers would confront tough decisions. “You have to question whether kicking the can down the road four months is in their interest,” he said.

Victoria accounted for 24.7 per cent of MyState’s COVID-19 support and loan repayment pauses, behind only NSW at 29.3 per cent. Tasmania, the bank’s home state, accounted for 23.6 per cent.

Last month, ASX-listed My­State noted an increase in collective provisions and its general reserve for credit losses of as much as $4m. The bank’s loan book amounted to $5.1bn as at December 31.

“We are comfortable that we are not going to have any more losses than we’ve provided for, but it is going to be a difficult period of time,” Mr Sulicich said, noting each COVID-19 customer case was different. He reversed an earlier decision to retire this month from the CEO role when the pandemic started to grip the economy.

Mr Sulicich said many customers who had not sought COVID-19 assistance were still taking a prudent approach to their finances and paying down an “enormous amount” of debt.

MyState’s credit rating was placed on review for a potential downgrade in April by Moody’s, in the same month the banking sector’s outlook was changed to negative. But the bank isn’t letting the COVID-19 crisis get in the way of its plans to forge ahead with the implementation of new technologies.

MyState this month is rolling out artificial intelligence and analytics via its mobile app and internet banking to provide its customers with a personalised view of their finances.

The initiative follows a marked acceleration in digital take-up during the pandemic.

MyState partnered with Tel Aviv-based Personetics – which counts BNP Paribas, Citibank, Royal Bank of Canada among its customers - on the technology.

The implementation by MyState includes giving customers functionality on an opt-in basis such as monthly cash flow analysis, bill payment reminders, and spending hike notifications. It can also nudge the customer to sweep spare money into a savings account.

MyState posted a 5.4 per cent rise in net profit to $15.1m for the six months to December 31. This month, MyState issued $25m in subordinated notes to investors.