Australia and New Zealand Banking Group (ASX: ANZ) has said that there is going to be another wave of business collapses in Victoria.
ANZ head of retail and business banking Mark Hand thinks the new lockdown will cause more loan deferrals and business failures according to the Australian Financial Review.
Before COVID-19 came along Victoria was one of the most popular states for migration, which has currently stopped. Mr Hand said that Victoria's outlook was already not as good as other states. He thinks Melbourne will have higher defaults than the rest of the country.
Is there hope for Victorian businesses?
APRA recently said that banks can give borrowers an extension for the loan payment holidays for another four months. This could be very important for the economy because the end of September was looming where both jobkeeper is scheduled to end and the payment holidays were due to stop.
However, Mr Hand said that some businesses may have to face reality and liquidate their asset or close the business rather than wait another four months. It seems that ANZ will only be lenient with businesses where it seems there is genuinely light at the end of the tunnel.
According to ANZ data, around two thirds of customers who have deferred their loan repayments should be able to make some form of repayment. However, he also said: "Some of that will be driven by customers who look at their circumstances and say it's time to do something different. I would expect to see a rise in distressed loans and loan defaults at the back end of the year."
He's particularly worried about Melbourne's restaurants, bars and cafes which won't see the required level of earnings for some time yet.
The OECD has previously warned that Australia's economy could fall by 6.3% in 2020 if there's a second wave of COVID-19 and lockdowns. Hopefully the rest of the country can stay COVID-19 free until a healthcare solution is created.
What does this mean for ASX banks?
As the second biggest city in Australia, Melbourne is an important part of the economy. It's understandable that investors may lower their expectations for earnings over the rest of 2020. The ANZ share price has dropped 5% since 2 July 2020. Over that same time period the National Australia Bank Ltd (ASX: NAB) share price is down 5%, the Commonwealth Bank of Australia (ASX: CBA) share price is down 0.5% and the Westpac Banking Corp (ASX: WBC) share price is down 5%.
With the rest of the country in a good COVID-19 position, national businesses like ASX banks don't face the same level of impacts as the initial nationwide lockdown.
If COVID-19 has sneaked into NSW from Victoria over the past fortnight then that would be a different (and worse) situation.
I think the US situation could cause the biggest worry for markets over the next few weeks. There are rising COVID-19 numbers across a number of economically important American states, the country just set a new one-day record of over 60,000 cases.
If ASX shares do sell off over the next few weeks due to domestic or international reasons then I plan to buy more shares. In hindsight, the March 2020 selloff was a clear, cheap buying opportunity. I think lower share prices would be another buy signal with how low interest rates are these days. The RBA interest rate is just 0.25% at the moment, and could be that low for years!
Some of the share ideas I'm interested in at the moment are: Brickworks Limited (ASX: BKW), Washington H. Soul Pattinson and Co. Ltd (ASX: SOL), Bubs Australia Ltd (ASX: BUB), PM Capital Global Opportunities Fund Ltd (ASX: PGF) and MFF Capital Investments Ltd (ASX: MFF).
