Bankers Upbeat on Australia’s Rebound Once Lockdowns Lift

(Bloomberg) -- Australia’s economy is well positioned to rebound once prolonged stay-at-home orders in Sydney and regional lockdowns lift as households and firms are stronger than at the start of the pandemic, according to the nation’s top banks.

“Australian companies are very well capitalized and liquid at the moment,” said Andrew Hinchliff, group executive, institutional banking and markets at Commonwealth Bank of Australia. “They are underlevered in many ways and even the areas you might say were more stressed -- aircraft, airports, student accommodation -- have very strong sponsors and are well supported.”

The country’s housing market is also showing some resilience with Australia & New Zealand Banking Corp. saying Wednesday that it provided deferrals on roughly 1,300 loans between the end of June and Aug. 10 -- just 1% of the total extended during the 2020/21. 

CBA last week said home-loan deferral numbers at the end of July were much smaller than at the same time last year. Business lending is still strong and the bank is seeing very low numbers of business loan deferrals so far.

Meanwhile, Westpac Banking Corp.’s mortgage deferrals have reached just A$1.6 billion ($1.2 billion) since June, compared with A$55 billion at last year’s peak, even though the lender is seeing a “little bit of stress” in its business portfolio.

“I’m certainly in the camp that activity will come back strongly when restrictions are reduced,” Westpac Chief Executive Officer Peter King said on the bank’s website.

Rapid Recovery

The bankers’ optimistic tones chime with the Reserve Bank of Australia’s decision to press ahead with its planned tapering of bond purchases next month, wagering on a rapid recovery once lockdowns end. Yet the highly contagious nature of the delta variant of coronavirus could mean that any rebound will be more subdued than last year’s V-shape.

“If you compare this lockdown wave to last year, we had Virgin teetering on collapse,” said Chris Wyke, co-CEO of boutique investment bank and asset manager MA Financial. “A lot of deal volume was evaporating because people didn’t have the confidence to follow things through.” 

By comparison, the stock market is now at all-time highs and vast amounts of stimulus cash is pumping through the economy, he added.

“There is a lot more conviction around people making business decisions with a view to looking beyond this disruption,” said Wyke. “This is a disruption as opposed to anything fundamental.”

Still, New South Wales recorded 633 new cases of the delta strain on Wednesday -- a 32% surge from the previous daily high recorded two days earlier -- as the virus tears through Sydney despite almost two months of lockdown. 

“The emotional toll is higher this time as there is a lot of anguish around how we get out of it,” said Hinchliff. “But the Australian economy is so well positioned, it will come out of this on a relative basis better than most.”

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