The adequacy of major bank provisioning has emerged as an industry talking point after leading bank analysts questioned National Australia Bank’s modelling of probable credit losses due to the lockdown.
UBS banking analyst Jonathan Mott believes NAB’s A$807 million top-up of its economic overlay “looks on the light side” because the bank’s management appears to be giving greater weight to the likelihood of sharp recovery rather than a more pronounced recession.
“This $807 million overlay implies an 87 per cent chance of a rapid 'V' shaped economic bounce back, and 13 per cent chance of a traditional recession, rather than a 'U' or 'L' shaped pandemic,” Mott told clients in a report.
“This implies that if the economic downturn is more severe or the recovery not as rapid as NAB assumes, further top-ups will be required in the second half of 2020 and 2021.”
The provisioning issue is likely to be a point of focus for analysts on Thursday when ANZ chief Shayne Elliott unwraps his bank’s first half accounts and provisioning assumptions.
There is anecdotal evidence to suggest ANZ may have already crystallised larger bad debts than other banks because of its disproportionate exposure to corporate borrowers in the challenged oil and gas industry.
The collapse of the oil price is testing the business cases of oil projects across the globe, leaving banks to sweat over the servicing capacity of borrowers.
ANZ has more than $20 billion lent out to the embattled oil and gas sector that accounts for 8.2 per cent of all corporate and business lending exposures.
The exposure to oil and gas borrowers has increased since 2017 as peers such as NAB and Westpac have reduced lending to the sector because of environmental concerns.
This could force ANZ to swell its provisioning to accommodate the higher risk profile of its corporate loan book.
The bank is facing a writedown of $US190 million($A290 million) of loans made to Singapore oil trading platform, Hin Leong Trading Pte Ltd, which Reuters reports was placed under the management of a court appointed supervisor earlier this month.
The prospects for ANZ and other international banks retrieving even a fraction of the loaned money look slim, given that the company’s founder recently told a Singapore court that he ordered accountants to hide losses worth hundreds of millions of dollars from investors.
ANZ is an active lender to developers of deep sea oil projects in the Asian region, which is likely to raise the risk profile of its corporate loan book compared to the other three domestic major banks.
ANZ’s credit exposures include a $60 million loan to Indonesian gas producer, Medco Energi.
Medco’s recent bond issues were rated as sub-investment grade by Moody’s and Standard & Poor’s.
The bank is also a lender to Horizon Oil, the company at the centre of an alleged $15 million bribery scandal in Papua New Guinea.