Even before the financial impact from the COVID-19 pandemic is felt, Westpac has warned the market that it will take a $1.43 billion hit to its first-half profits thanks to higher provisions for the money laundering compliance scandal and customer refunds.
In a statement to the ASX on Tuesday, the bank also warned of significant loan losses due to the coronavirus.
Westpac said it should be ready to update the market on these COVID-19-related costs before its half-year results on May 4, when it said its interim profits would be lower than last year.
The bank said the new provisions will take Westpac’s common equity tier 1 capital ratio — a key gauge of bank strength — to 10.5% of risk-weighted assets.
This is the minimum “unquestionably strong” level required by regulators in normal times but APRA has relaxed those standards to allow the major banks more freedom to support customers in the emerging economic shock triggered by the pandemic.
“Having spent much of the last decade strengthening our capital we are well placed to respond to the unfolding environment,” Westpac chief executive Peter King said in a statement.
Westpac raised $2.8 billion in equity from its shareholders last November before it was hit by the money laundering lawsuit.
The provisions announced by the bank are mainly the result of the legal action launched last year by the financial intelligence agency AUSTRAC which accused the bank of breaching anti-money laundering laws 23 million times.
Westpac said in Tuesday’s announcement that said it would set aside $1.03 billion for costs associated with the case, which is still before the courts.
Westpac also said it would take a $260 million provision for customer refunds, repayments and litigation costs flowing from the Hayne royal commission outcomes.
A provision of about $70 million has been made relating to changes to group life insurance.
The bank said it was is now undertaking a “detailed analysis” of its bad loans provisioning because it expects a “significant” increase in its collective provisions in anticipation of higher costs from COVID-19, and said it expected “lower” cash earnings at the half.
APRA last week urged banks and other financial groups to consider suspending dividends during the crisis, and Westpac said the lower profits would be “taken into account when considering dividends” ahead of its May 4 announcement.
The Bank of Queensland last week became the first financial group to defer its dividend – an interim – when it revealed lower earnings for the first half of 2019-20.
Westpac shares rose 1.9% to $16.27
