Allowances for this year, their FY2021, are likely to be lower, with banks’ management guiding either the lower or mid-range of the ranges they guided last year. Hence, if pre-provisioning operating profit remains the same as FY2020, profit after tax and allowances is likely to beat last year’s levels. And this holds true for the three local banks.
Bank investors have a lot to look forward to if no black swans appear on the horizon. If FY2019 was a normal year, FY2020 is likely to go down as peak provisioning and a trough for earnings. FY2021 should be better than FY2020, but unlikely to match FY2019. Here is why.
A common theme running through the FY2020 ended Dec 31, 2020, results of the three local banks — and foreign banks — is that the impact of peak Covid-19 on the global economy is behind us. This suggests that credit costs and allowances for problem loans — be they through general provisions or specific provisions — are likely to have peaked.
