According to Morgan Stanley analyst Richard Wiles, Bendigo and Adelaide Bank currently has the “lowest level of collective provision coverage”, with the bank yet to raise a COVID-19-specific provision.
At present, Bendigo’s collective provisions total $147 million and include housing loan provisions of 9 bps and non-housing provisions of 59 bps.
As a result, Mr Wiles has predicted that Bendigo would raise approximately $80 million in new provisions this week to at least match its closest competitor, the Bank of Queensland (BOQ).
This would equate to 12 bps of gross loans across Bendigo’s total portfolio.
“We estimate that the COVID-19 provision would need to increase by $80 million to $110 million or 13-17 bps of total loans to be in line with the BOQ pro forma range, but would need to rise by $200 million to match Suncorp and $225 million to reach the major bank average,” Mr Wiles said
BOQ provisions insufficient
The analyst said he also expects BOQ to bolster its COVID-19 provisions, which totalled $10 million as at February 2020.
Mr Wiles claimed that the provision would have been between $49 million to $71 million if it were based on market conditions in early April.
While the pro forma collective provision of $189 million to $211 million would lift coverage to 14-17 bps for housing loans and 91-99 bps for non-housing loans, this would still be below regional peer Suncorp and the average of the major banks,” he said.
“We estimate that the collective provisions would need to increase $85 million from 1H20 to reach the low end of major bank coverage, $150 million to match Suncorp and $230 million to reach the top end of the majors.”
Banks are bracing for a spike in defaults upon the expiry of the six-month deferral period.
The big four banks have set aside over $7.2 billion in credit provisions in anticipation of a sharp deterioration in credit quality.
Last month, S&P Global Ratings reported that it is forecasting an 85 bps increase in credit losses across the Australian banking sector’s loan portfolio in the 2020 financial year (FY20).
The 85 bps increase, which is expected to moderate to 50 bps in 2021, amounts to approximately $29 billion in gross loans, nearly six times higher than the record low in FY19.
[Related: Mortgage deferral total surpasses $150bn]