The APRA end-of-year report card on the banking industry is woeful, but hopeful.
Across 2020, a year of crisis and Covid, one point of difference for Australia’s banking industry is that it’s not the Australian general insurance industry.
Insurance profits last year were zero, for general insurance anyway, as provisions and losses exploded.
For the country’s 147 banks, the pandemic smashed its way through 35 per cent of 2019 profit, leaving dividend-addicted boards with A$22 billion in combined net profit to put away for a rainy day, or pacify their owners with pocket money.
Total provisions for the industry climbed by 13 per cent to $14.6 billion, APRA said yesterday.
Impaired assets and past due items blew out by 17 per cent to $36.4 million.
Credit write-offs were three times as high in 2020 at $12.4 billion over 2019 – and in the GFC is any guide, the bad debt charge for banks in 2021 will be the same again, only worse.
“Total capital and common equity tier 1 (CET1) capital ratios have risen to historically high levels of 17.6 per cent and 12.2 per cent respectively, with driving factors including higher retained earnings due to lower dividend payout ratios, lower risk weighted assets and the impact of concessional capital treatment of eligible loans subject to repayment deferral,” APRA wrote in the Quarterly ADI Performance statistics.
“The ADI industry was resilient in the December quarter, with high capital ratios and strong liquidity and funding positions,” APRA said.
“Industry profitability improved over the quarter due to reduced charges for bad or doubtful debts.
“Overall growth in loans and advances was slow, although housing lending grew moderately, supported by lending to owner-occupiers.
“Despite moderately increased new lending at higher loan-to-valuation ratios and debt-to-income ratios, available indicators do not suggest any material relaxation in housing lending standards, with these metrics remaining broadly in line with historical averages.
“Key measures of asset quality were stable thanks to a range of measures providing support to borrowers, but the outlook is uncertain as support measures change over coming quarters.”