Westpac flags $1.6bn COVID-19 loan hit

Westpac has given a much gloomier assessment of the economy than NAB, outlining expected COVID-19 loan losses double that of its rival.

Westpac expects to take a $1.6bn hit from COVID-19-related losses on loans. Picture: Hollie Adams

Westpac has provided a much gloomier assessment of the economy than rival National Australia Bank, outlining expected COVID-19 loan losses of $1.6bn from the “once in a lifetime” crisis.

Westpac told the ASX on Tuesday first-half impairment charges were expected to be $2.24bn pre-tax, with about $1.6bn of additional charges “predominantly related” to COVID-19 impact. The bank also noted and additional $0.6bn in individually assessed provisions and net write-offs.

The $1.6bn tally is about double the $807m NAB outlined as it brought forward its profit results by 10 days to launch a $3.5bn capital raising and slash its dividend to 30c per share, to help it navigate the turmoil.

“The world is going through a once in a lifetime health and economic crisis and we are committed to assisting as many customers as possible to bridge this shutdown period. Our packages are already providing relief to individual and business customers,” new Westpac chief executive Peter King said in the statement.

“It is, however, unfortunate that some customers will not be able to navigate the financial and economic changes of this crisis and may not re-open. Nevertheless, we will work closely with those customers to help them through that process.”

The bank’s shares rallied almost 2.3 per cent to $14.99 in early afternoon trading on Tuesday, after declining 4.4 per cent on Monday.

Westpac reports its first-half earnings on Monday, following ANZ on Thursday. The bank also earlier outlined $1.43bn in writedowns and charges to interim profit, as it put aside $900m for an expected financial crimes penalty and cautioned of further customer compensation costs.

Westpac’s first-half credit impairment charge of $2.24bn equates to about 62 basis points of gross loans, annualised. That compares to 13 basis points and 9 basis points for the two prior halves respectively.

The bank said the $1.6bn addition to the impairment charge had “a relatively small impact” on its common equity tier one capital ratio with an 11 basis point decrease expected.

“This is because the higher charge lifts provision levels and reduces the regulatory expected loss capital deduction to nil. Westpac’s CET1 capital ratio at 31 March 2020 is expected to be 10.8 per cent.”

Westpac has been tipped as the next capital raising candidate among the big banks, given it is not cashed up as ANZ or Commonwealth Bank, which have embarked on large asset divestment programs.

The big four banks are under immense pressure as business shutdowns and job losses ripple through the economy, with loan losses expected to balloon as a recession takes hold.

“While impairment provisions have begun to increase, the extent of additional charges in subsequent periods will depend on the severity and duration of the decline in economic activity and the size and effectiveness of stimulus measures,” Westpac’s statement said. “The group will reassess its provisioning levels as developments unfold.”

NAB took a big hit from the virus, with net profit for the six months ended March 31 more than halving to $1.3bn.

An additional $807m in provisions for the potential impact of COVID-19 were outlined on Monday which saw loan impairments surge to $1.2bn.