Westpac has announced it will take a $2.24 billion pre-tax first-half impairment charge, mostly because it expects some of its loan customers won’t survive the coronavirus crisis.
Westpac said new accounting standards required the bank to estimate future loan defaults rather than waiting for them to occur, and so it was taking the $1.6 billion COVID-19 impairment now.
“The world is going through a once in a lifetime health and economic crisis and we are committed to assisting as many customers as possible to bridge this shutdown period,” Westpac chief executive Peter King said.
“It is however unfortunate that some customers will not be able to navigate the financial and economic changes of this crisis and may not reopen.”
“Having materially strengthened capital over the last decade, building significant buffers, we are well positioned to absorb this increase and respond to future developments.”
Westpac said the impairment was based on significant changes to economic growth forecasts and the likelihood that economic conditions would deteriorate further, as well as an industry-by-industry assessment of stress that could emerge in relation to COVID-19.
The bank said the outbreak was in its early stages and its impacts on customers and future impacts on the bank was highly uncertain.
The extent of additional charges would depend on the severity and duration of the decline in economic activity and the size and effectiveness of stimulus measures, Westpac said.
The bank’s first-half results are expected to be released on May 4.