The Westpac Banking Corp (ASX: WBC) share price is charging higher on Tuesday after it appeared to rule out the need for a capital raising in the near future.
At the time of writing the banking giant’s shares are up 4% to $15.25.
What did Westpac announce?
This morning Westpac announced that its impairment charges in the first half of FY 2020 are expected to be $2,238 million (pre-tax).
According to the release, this impairment charge includes approximately $0.6 billion from individually assessed provisions and net write-offs together with approximately $1.6 billion of additional impairment charges predominantly related to COVID-19 impacts.
The good news is that the $1.6 billion addition to the impairment charge will have a relatively small impact on its common equity tier 1 capital ratio capital. The company estimates it to be an 11 basis point decrease. This is because the higher charge lifts provision levels and reduces the regulatory expected loss capital deduction to nil. Westpac’s CET1 capital ratio at March 31 is expected to be 10.8%.
Is a capital raising coming?
In light of this, Westpac is unlikely to be following the lead of National Australia Bank Ltd (ASX: NAB) by raising capital in the near term.
The company’s new CEO, Peter King, commented: “The world is going through a once in a life-time health and economic crisis and we are committed to assisting as many customers as possible to bridge this shutdown period. Our packages are already providing relief to individual and business customers. It is however unfortunate that some customers will not be able to navigate the financial and economic changes of this crisis and may not re-open. Nevertheless, we will work closely with those customers to help them through that process.”
Despite this, Mr King notes that the bank’s capital position is strong. He added: “Having materially strengthened capital over the last decade, building significant buffers, we are well positioned to absorb this increase and respond to future developments in the environment.”
Though, the bank warned that the COVID-19 outbreak is still in its early stages and the impact on its customers, along with future impacts on the bank, remain highly uncertain.
It concluded: “While impairment provisions have begun to increase, the extent of additional charges in subsequent periods will depend on the severity and duration of the decline in economic activity and the size and effectiveness of stimulus measures. The Group will reassess its provisioning levels as developments unfold.”
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Motley Fool contributor James Mickleboro owns shares of Westpac Banking. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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