ANZ: Banks Are ICU Unit In Nightmare Scenario
Australia’s banks could face tough decisions of which households and corporates to let go and which to save as banking chiefs prepare for a nightmare scenario of huge economic contraction and bigger-than-expected loan losses.
As Australia follows other countries in shutting down large segments of the economy to try to stem the virus’s spread, individuals and businesses are already feeling the strain from the coronavirus pandemic. As a result, banks have become the «ICU unit of the economy», said Australia & New Zealand Banking Group (ANZ) CEO Shayne Elliott on Monday at an Australian Financial Review event.
«Corporates and households will come into care and we will have this unfortunate role at some point of having to decide who comes out at the end,» said Elliott during the online event.
Tens Of Thousands Sent Home
Tens of thousands of workers have already been sent home as retailers and airlines all-but close and queues outside job centers lengthen. Meanwhile, Australia’s lenders have been busy with telephones ringing non-stop as consumers and businesses try to access relief packages.
The nation’s banks have special dispensation from the competition authority to co-operate throughout the crisis and have banded together to launch a range of hardship measures, including allowing consumers to suspend mortgage payments for up-to six months.
Worse To Come
Despite the relief measures, banking chief are bracing themselves for a nightmare scenario of a 10 percent economic contraction, very high unemployment rates, and spiralling loan losses due to the coronavirus outbreak.
Last week, Commonwealth Bank of Australia CEO Matt Comyn said he would have estimated the economy would shrink by about 5 percent in the first quarter. Now, he said that a 10 percent contraction is a «reasonable assumption», adding there is no doubt about higher loan losses.
National Australia Bank's economics research team said Friday the jobless rate could soar to 12 percent and hold there for the remainder of the year. «I think you will see very, very large GDP drops. Unemployment will also go shockingly high for a period of time,» said National Australia Bank's CEO Ross McEwan during the same forum.
No Playbook
Meanwhile, the three CEOs emphasized that the focus is on getting through the crisis and being prepared to help the economy reboot on the other side. In the medium term, that’s likely to mean tough choices about who gets help.
«There is no playbook for this. We’ve not seen this sort of health and financial crisis at the same time,» McEwan said.
