Moody’s Investors Service says in a new report that pressure continued to rise for Australia’s four major banks during the June quarter, as the coronavirus weighs on asset quality, profitability and capital.
The four banks are Australia and New Zealand Banking Group, Commonwealth Bank of Australia, National Australia Bank, and Westpac Banking Corporation.
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“We have already seen an uptick in nonperforming loan at all four banks, but we expect the full impact of the coronavirus-led downturn to become more visible only towards the end of March 2021, when the unprecedented loan forbearance programs are set to expire,” says Daniel Yu, a Moody’s Vice President and Senior Analyst.
“Significant downside risk remains in the form of extended economic disruption, which would test the sufficiency of the banks’ already strengthened loan loss reserves and drive up credit costs,” adds Yu.
Depressing outlook in the near term
The near-term outlook for the banks is bleak, as tighter lending criteria will constrain growth in housing loans, while weak household confidence is likely to suppress credit demand.
Growth in business loans has dropped off since March, when many institutional and corporate customers drew down on their credit lines to boost liquidity, and is likely to remain weak due to the challenging economic conditions.
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By GlobalDataMeanwhile, the low interest rate environment and intense lending competition will keep net interest margins (NIMs) under pressure. Weak loan growth and NIM contraction will constrain revenue growth amid increasing credit costs.
Although the four banks’ capitalisation continued to strengthen during the June quarter, it will come under pressure as deterioration in asset quality will drive increases in credit risk-weighted assets, while internal capital generation will weaken in line with revenue growth.
