Extended loan repayment deferrals could cost the big banks anywhere from A$700 million to $1.1 billion in lost revenue, according to new analysis.
Macquarie Securities said the extension of loan repayment deferrals for another four months, along with the extension of APRA’s regulatory concessions, gives the banks extra time to deal with issues, including the opportunity to restructure loans. And more customers are likely to be able to return to employment.
Banks have more opportunity to resolve issues without putting customers into default, which would otherwise result in a sizeable rise in risk-weighted asset density and hence capital intensity.
Despite the positive aspects of the extension, Macquarie expect the increase in arrears to be “meaningful” as customers come off deferrals.
On July 8, the Australian Banking Association announced that its members would extend loan repayment deferrals arrangements, which were to end in September, for another four months. Customers who can restart paying their loans at the end of their six-month deferral period will be required to do so, with banks offering variations or restructured loans.
APRA extended its temporary capital treatment for bank loans with repayment deferrals, as well as temporarily adjusting the capital treatment of loans where terms are modified or renegotiated.
Mortgage and small business loan deferrals are currently around $235 billion.
Should the major banks offer ongoing deferrals to 25 per cent of the customers currently on deferrals, this would translate to $350 million revenue impact for ANZ, $549 million for Commonwealth Bank, $501 million for NAB and $493 million for Westpac.
If the banks offer ongoing forbearance to half their current deferrals, the revenue impact would be $714 million for ANZ, $1.1 billion for CBA, $1 billion for NAB and $986 million for Westpac.
If the banks offer a significant number of customers the option of restructuring their loans, such as switching to interest-only payments for a period of time or cutting the interest rate, the impact on revenue would be less but it would be more prolonged.
Macquarie is forecasting that ANZ will report a cash profit of $3.6 billion for the year to September, down from $6.5 billion in 2018/19, and pay a total dividend of 35 cents a share, compared with $1.60 a share in 2018/19.
It is forecasting that CBA will report cash profit $7.6 billion for the year to June, down from $8.5 billion in 2018/19, and pay a total dividend of $3 a share, compared with $4.31 a share in 2018/19.
NAB is expected to report cash profit of $3.4 billion for the year to September, down from $5.1 billion in 2018/19, and pay a dividend of 60 cents a share, compared with $1.66 a share in 2018/19.
Westpac is expected to report cash earnings of $3.8 billion for the year to September, down from $6.8 billion in 2018/19 and pay a total dividend of 40 cents a share, compared with $1.74 a share in 2018/19.