While the S&P/ASX 200 Index (ASX: XJO) is managing to stay in the green this afternoon, bank shares are certainly not helping it. In fact, 2 out of the big 4 ASX-listed banks are in negative territory in late trading.
The weakness in the financial sector follows reports of a possible additional $700 million in COVID-19 loan impairments.
Let's have a closer look at the details.
Lagging lockdowns might damage ASX 200 rebound
Rewind a few months back and ASX bank shares were announcing the writeback of credit impairment charges. This was reflecting an improvement in the outlook of possible COVID-19 impacts.
However, since then, a third of Australia entered lockdown for a period and Sydney continues to grapple with a surge in cases.
The latest estimate of economic damage from Greater Sydney's extended lockdown tips $7 billion, according to AMP Capital's Chief Economist Shane Oliver. This would be the case if the lockdowns were drawn out for an additional four weeks.
Consequently, Head of Research for Morgan Stanley Richard Wiles is expecting banking constituents of the ASX 200 to be more conservative with releasing provisions. The bank analyst is forecasting the big 4 to book $700 million worth of impairments for the June quarter.
We don't think the Sydney lockdown will lead to higher individual provision charges in the June quarter, although we expect the banks to take a more conservative approach to provision releases.
The financial hardship inflicted by the recent COVID resurgence has resulted in further government support for NSW. Both the Federal and state governments have joined in offering support for businesses and impacted employees.
Comparing between the ASX big 4 bank shares
According to Morgan Stanley, Westpac Banking Corp (ASX: WBC) could report the largest impairments for the quarter at $200 million. Meanwhile, National Australia Bank Ltd (ASX: NAB) and Australia and New Zealand Banking Grp Ltd (ASX: ANZ) are forecast to fare the best, with impairments of $150 million each. Finally, the broker expects the Commonwealth Bank of Australia (ASX: CBA) to report $177 million in impairments.
The ASX 200's largest bank share will be the first to report, with full-year results slated for August. Comparatively, the other banks will likely deliver quarterly updates ahead of closing out the September quarter.
