The COVID recession will not be as severe as first feared but the recovery will be longer, ANZ chief financial officer Michelle Jablko told investors at the bank’s 2019/20 results briefing yesterday.
In March, the bank said its base case scenario included an assumption that its common equity tier 1 capital ratio would fall by 110 basis points in 2019/20 and 2020/21. Its current expectation, using its base case scenario, is that CET1 will fall by 65 bps over the two financial years.
This change in outlook was reflected in the bank’s collective provision charges of $1.1 billion in the March half, falling to $685 million in the second half.
The collective provision balance grew from $3.4 billion in 2018/19 to a little over $5 billion at the end of September, with the majority of that increase economic forecast and scenario weights and additional overlays.
The bank’s economic base case scenario for modelling expected credit loss includes GDP growth of 1.6 per cent in Australia in 2021 and 4 per cent in 2022, unemployment of 8.8 per cent in 2021 and 7.7 per cent in 2022, and a residential property price fall of 4.8 per cent next year followed by a rise of 2 per cent in 2022.
The downside scenario has unemployment at more than 9 per cent over the next two years and property prices falling 5.9 per cent next year before growing 1 per cent in 2022. There would be no GDP growth over the next two years.
The bank’s outlook is currently more base case than downside scenario.
ANZ chief executive Shayne Elliott said the COVID deferral program has worked out better than expected and the bank has the capacity to manage any increase in hardship.
“It gave use space to tailor the best solutions for our customers,” he said.
Elliott said the bank’s investment in data analytics has allowed it to manage risks in ways it could not have done in the past, including tracking hotspots
Out of a total of just over one million Australian home loans, 95,000 were on deferral between March and October. Around 40,000 are still on deferral. Of the rest, 79 per cent have or will return to full payments, 20 per cent have requested a further deferral and 1 per cent have had their loans restructured or moved into hardship.
Of 529,000 New Zealand home loans, 10,000 are still on deferral.
Of 236,000 Australian commercial loan, 10,000 are still on deferral.
Jablko said the bank has had lower delinquencies. In the commercial loan book, 90-day delinquencies were flat year on year. In the Australian consumer portfolio, home, personal loan and credit card delinquencies were all down year on year.
She said the outlook for the bank’s margin included ongoing pressure from low rates and a possible Reserve Bank rate cut.