Australia's customer-owned banking institutions are in a position to weather the short-term economic stress induced by the COVID-19 outbreak and containment measures, according to a recent report from S&P Global Ratings.
The confidence is partially attributable to the fact that the COVID-19 related loss expected to be experienced by mutual lenders is forecasted to be much lower than that of the larger regional and major banks.
The primary differentiator is that the balance sheets at customer-owned institutions are dominated by residential mortgage lending. For comparison, home lending represents 93% of total lending at mutuals on average, as compared with 74% for regional banks and 63% for the major banks.
As such, mutuals are in a more stable position as small and medium sized business lending and nonfinancial business borrowers – including those in hospitality, tourism, and retail trade – are those being most directly affected by the economic impact of COVID-19 and the related lockdown restrictions across the country.
Conversely, rated credit unions, building societies, and other mutual financial institutions have very little exposure to SME borrowers or the aforementioned industries and should be able to cope with the downturn.
"We expect that our issuer credit ratings on Australian mutual lenders will remain unchanged even if we formed a view that there has been a longer lasting but modest rise in economic risks facing these institutions," said Lisa Barrett, S&P Global Ratings credit analyst.