SYDNEY, Australia – Peter King, the chief executive if Westpac Group, said that bad loans after the historic deferral of repayments due to COVID-19 would primarily influence the bank’s dividend policy moving forward.
On Monday, Westpac, one of the big four banks in Australia, said that its cash profit had declined significantly to 993 million, dropping by 70%. That is primarily due to the hefty charges caused by bad loans and debts, as well as the money laundering scandal from the previous year. Westpac further stated that it would not pay a dividend next month because of its ambiguous position.
Mr King also noted that the recent figure is the most challenging result they have seen in many years. The bank already set aside around $1.6 billion to help compensate for the bad loans caused by the ongoing health crisis due to COVID-19. With this, Mr King retained the bank’s forecast for a V-shaped recovery. However, he also admitted that despite having a considerable growth coming forward, there may still be around 9% of unemployment rate this quarter.
Although some market analysts didn’t expect to see dividends for the first half of the year, the Westpac CEO commented that they would observe how borrowers will deal with loan deferrals in the coming months.
Mr King said that they would continue to monitor the current situation. That includes watching over Westpac’s loan books. He also said that keeping an eye on the performance of the bank’s credit book will be one of the significant keys they will follow in the months ahead.
Mr King further stated that the bank’s decision would primarily depend on the standing of the country’s economy moving forward. If it levels up much quicker than expected, then the bank will likely decide at a much earlier date. However, if the opposite happens and the economic growth will have a slower path, then Westpac will consider it as the full-year results, he said.
To help compensate for the impacts caused by the ongoing health crisis due to the coronavirus pandemic, lenders approved loan repayment deferrals. They also deployed emergency loans in the recent months, providing aid and financing to over hundreds of thousands of borrowers.
According to the statement of one of Australia’s major banks, Westpac recorded around $39 billion worth of repayment deferrals from its 105,000 different mortgage accounts. That doesn’t include the $8.2 billion worth of businesses loans from over 31,000 accounts currently on hold.
Mr King has been Westpac’s acting CEO for the past year, but only got appointed to the position since last month. He said that they are currently highlighting any potential asset sales as the bank tries to find ways to shift their primary focus to banking.
One of the recent moves from the bank was re-hiring Jason Yetton as Westpac’s executive. He will oversee the business reviews, including those for retirement and superannuation products, auto loans, investments, wealth platforms, and life and general insurance.
The bank also commented that businesses will have a new division and will have a possibility for sale.
The recent results of Westpac are mainly due to the adverse effects caused by the coronavirus outbreak. Banks and lenders are currently bracing for a surge of bad loans that will also take a piece of their profits.
As disclosed by the Westpac, its recorded profit for the first half was mostly taken out by the penalty for last year’s AUSTRAC scandal, which was worth $900 million. The $1.6 billion they have to set aside for the COVID-19 further declined its revenue.
Westpac already announced its provisions for bad loans several weeks before releasing its results. With this, some market analysts are saying that the forecasted figures may not be as detrimental as the bank feared, as its share price still closed the week with a 2.8% increase.
Meanwhile, the suspension of its dividend for June is the latest decision from the bank to delay its dividend policy release. It followed the same move of that the Bank of Queensland announced last month and the ANZ Bank declared last week.
On the other hand, Don Hamson, the managing director of Plato Asset Management, commented that he didn’t expect that ANZ nor Westpac will pay dividends for the first half of 2020. He said that the current crisis would put the income of investors into a six-month hole.
Victor German, an analyst from the Macquarie Bank, also forecasts that there may not be any dividend paid by June as well. He said that like other major banks in the country, Westpac’s 10.8% CET1 position is below compared to other lenders. The market doesn’t expect Westpac to pay its dividend for the first half unless the economic condition in Australia magically improves, he added.
Also, Mr King showed a blurry future on the bank’s outlook moving forward. According to him, the Australian economy is most likely going to decline considerably this quarter. The condition may not get any better until, at the very least, by late in the last quarter of 2020.