The new standard, which took effect in 2018, was part of the global regulatory response to the global financial crisis, when banks around the world increased their provisions too little, too late.
TO Australian Financial Review Banking & Wealth Summit crisis briefing Monday Commonwealth Bank Managing Director Matt Comyn these banks are grappling with the severity of the recession.
“It is impossible to reliably estimate what [virus] is going to have an impact, but there is no doubt that there are going to be higher loan losses and defaults in the short term, ”he said at the virtual event. “Of course we are thinking about it. But as you would appreciate, things are moving so fast. “
As the Australian Prudential Regulation Authority allows banks to exclude new loans to SMEs under the RBA facility from the bad debt calculation, it said on March 23 that it expected banks to “continue to provision these loans in accordance with the relevant accounting standards “.
Mr Wilson said that given the crisis, “the banks'” disclosed economic base cases – which underpin the construction of the allowance for expected credit losses – now appear somewhat outdated and optimistic. “
In the worst-case scenario – a widespread recession, sluggish recovery and perverse political results – bad debts across the four majors could reach $ 122 billion over the 18-month period.
The ABC will publish a quarterly earnings report in early May, before releasing its annual results in August. The other three big banks will publish their half-year results in May and their annual results around the beginning of November.
While May may be too early for big steps to be taken, Wilson said they would be visible in the second half of the calendar year as the economic forecast incorporates scenarios of recovery from the pandemic. .
Citi analyst Brendan Sproules also expects a sharp increase in credit provisions, but agreed with the new accounting standard that it will be “difficult to assess even the level of credit provision required” and he wondered whether banks should be forced to enforce it.
“The ultimate losses will only become apparent during the recovery phase, after the medical crisis is over. [Only] Once the economy is able to resume normal operation, will true credit losses be established, “Sproules said in a report last week.
“Under IFRS 9, the bank will be required to estimate the size of the ’12 month expected losses’ or ‘lifetime losses’ that are expected to be incurred. Given the unique circumstances of this COVID-19 crisis, we believe there will likely be discussions about the enforceability of these rules. “
APRA said on Monday it was delaying the planned implementation of the Basel 3 reforms in Australia for one year, after the Basel Committee on Banking Supervision did the same for banks around the world. APRA said this would not impact the level of capital banks are required to hold, but postpones adjustments to the reallocation of capital between various portfolios.