ANZ shares fell 2.4% to $18.70 yesterday in a market that was rattled all day by the new waves of COVID-19 infections in Europe and the US. The ASX 200 fell 97 points or 1.6% yesterday on those rising COVID-19 fears.
The fall by the ANZ was the biggest among the big four banks – Westpac shares ended down almost 2%, NAB shares lost nearly 1.5% and CBA shares eased 0.4%.
The fall in the ANZ’s share price was both expected and unnecessary – all the big provisions for bad debts are prospective, not actual, if the drop was a result of investors not liking the figures in the final report.
The dividend was cut because of the high provisions, the uncertain outlook for 2021, and the desire by regulators for the banks to retain as much cash and capital as possible.
The lower statutory and cash earnings falls should not have been a shock to the market.
What should be worrying is the bank (before a lot of other companies and groups) spotting that the real pressures are coming in 2021 for customers, the economy, the markets, and governments.
CEO Shayne Elliott yesterday predicted the real economic pain from the coronavirus pandemic, saying it will be felt by customers towards the middle of next year.
Mr. Elliott said ANZ was “building its war chest” by expanding the loan impairment provision to protect the bank from small businesses and individuals that could go bust once government support packages that are “buying time” are cut off.
“We would expect the real pain, the real losses are more likely to come in the middle of next year. Why? Because there’s always a lag,” Mr. Elliott said. “The difficulty will be in what happens when some of those support packages get removed. Inevitably they will.”
The bank said yesterday that 42% of its 95,000 home loan deferrals were still being deferred.
Of the 55,000 borrowers whose initial deferral periods had expired, 20% cent had requested a further deferral (half from Victoria), 79% had returned to full payments and 1% had restructured or transferred to hardship payments.
Total loan deferrals have fallen to $71 billion, down from their peak in June of $125 billion.
The ANZ said its Australian home loan deferrals have fallen to $51 billion.
Ratings group, S&P Global said both the provisions (an extra $1 billion in the second half for a total of $2.738 billion) and consequent lower earnings were broadly in line with its expectations.
The ratings agency said the provisions positioned the bank well to absorb the credit losses that COVID-19 would likely inflict.
“We maintain our view that the bank’s capital position is likely to remain strong,” it said.
The ANZ also revealed an updated climate policy on Thursday, pledging to no longer provide banking to any new business customer that makes more than 10% of its revenue from thermal coal.
ANZ also committed to not providing direct finance to any new coal-fired power plants or thermal coal mines, including expansions, and said it would help existing customers that have more than 50% exposure to thermal coal create a diversification plan.
Existing lending to thermal coal companies would be phased out by 2030, it said.
As well, ANZ said its new climate policy was to only finance the construction of large-scale office buildings if they are highly energy-efficient, it said.
