The NAB (ASX: NAB) CEO has warned that many borrowers who have asked for a payment holiday are still in a tough spot.
About the bank
NAB is one of the four largest financial institutions in Australia in terms of market capitalisation, earnings and customers. However, in 2018, it was Australia’s largest lender to businesses and has operations in wealth management and residential lending. It also operates the online-only Ubank.
NAB’s CEO warning
According to AFR reporting, NAB CEO Ross McEwan was on ABC Radio National earlier and he gave a concerning update about borrowers who have taken a payment holiday.
He said that the major ASX bank has been contacting its business and property loan borrowers to see how they’re going.
Mr McEwan revealed that around 10% to 15% of borrowers confirmed they’re now actually in decent shape and wanted payments to restart.
However, things are a bit more uncertain for the other 85% to 90% of borrowers. Mr McEwan said: “The rest have said ‘look, let’s see how we’re going in the next month or two as I get my job back or I get my business back up and running’.”
He went on to warn that the economy may not recover as quickly as some people were expecting. He’s expecting a full recovery by 2022.
What to make of these comments
Just because a borrower wants the payment holiday to continue doesn’t necessarily mean their finances are dire. Some people may prefer the continued improvement for their short term cashflow.
However, I think it may paint a picture of difficulty for a lot of borrowers out there. Just because the ASX share market has bounced back strongly doesn’t necessarily mean bank bad debts, financial stress or the housing market will perform as well.
We certainly aren’t looking at a catastrophic depression with how well Australia’s infection numbers are now looking. The iron ore price is high. Things are look better than the worst-case scenario.
But there’s a reason why NAB, ANZ (ASX: ANZ), CBA (ASX: CBA) and Westpac (ASX: WBC) have collectively provisioned billions of dollars for the COVID-19 impacts. We’re not out of the economic woods. At the current prices I’d want to choose other investments over the banks which don’t face such large potential downsides.
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Disclosure: At the time of writing, Jaz doesn’t own shares in any of the businesses mentioned.
