Mortgage arrears are falling but business arrears are rising at Bendigo and Adelaide Bank, with the bank the latest to raise a pandemic-related provision.
The bank yesterday lifted its level of provisioning through an overlay of A$148.3 million “for potential future impacts from the COVID-19 pandemic”.
The additional overlay increases the collective provision and FY20 credit expense by $127 million and the general reserve for credit losses by $21 million, increasing the ratio of total collective provisions and GRCL over gross loans to 56 basis points.
The COVID-19 overlay decreases the bank’s CET1 capital ratio by 40 basis points, leading to a proforma CET1 of 9.30 per cent as at March 2020.
The bank said the additional provision overlay is based mainly on “a significant change to the base case economic outlook ... this includes lower GDP, higher unemployment, and a reduction in residential and commercial property prices”.
Bendigo also cited “a shift in the weightings of the scenarios used in the calculation of the provision, towards an increase in the downside economic scenarios; and an overlay specific to business and consumer portfolios”.
The bank said it “has not assumed a sharp recovery in the adopted economic outlook, but rather a slower recovery with probabilities biased to the downside”.
The bank also provided updated arrears data for April “which reflect improved arrears in the mortgage portfolio and stable arrears in the other consumer portfolios (allowing for seasonal trends)”.
The decline in mortgage arrears continued even after the bank diverted collections staff to work on assisting customers with loan deferrals.
The bank said the “targeted rebalancing of the business portfolio away from real estate construction and development lending over the last two years has improved the risk profile of the portfolio”.