Corbally: managing risk in a pandemic

He said new accounting standards guided the bank’s calculations for the credit loss provision charge in the half-year result, allowing the bank to be prudent as COVID-19 unfolds.

"You need to look not just based on the factors you know today but also what you think the future economic environment might be in determining what that provision should be.” - Corbally

Speaking to bluenotes via video-link, Corbally said the AASB9 standards take into account expected credit loss in determining provisions.

“You need to look not just based on the factors you know today but also what you think the future economic environment might be in determining what that provision should be,” he said.

The bank has seen 10 per cent home borrowers and 15 per cent of businesses seek deferrals on repayments but under regulatory guidelines these are not considered impaired loans

ANZ’s cash profit for continuing operations was $A1.41 billion, down 60 per cent with the prior comparable period. The statutory profit after tax was $A1.55 billion in the full year, a 51 per cent decrease.

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Click here for a transcript of this video

Corbally said the bank used four levels of scenario planning incorporating gross domestic product (GDP), unemployment rates and house prices to determine the collective provision charge.

“I think we’ve taken a really prudent approach this year to our assumptions,” he said. “For example, with GDP we’ve assumed that will actually reduce or contract in the June quarter by 13 per cent. To put that in context, that is the largest contraction we’ve seen in Australia since the Great Depression.

“We then take all of those scenarios, feed them into an expected credit loss model for every single customer… and apply the probability weights that we come out of those scenarios.”

Corbally said customers – and the bank – also needed to be wary of other operating risks involved in dealing with COVID-19 such as fraud, increased stress and fatigue leading to operational errors, or telecommunications infrastructure failure.

“Clearly leading into this situation, regulatory matters including anti-money laundering were top of mind and will continue to be top of mind as we go forward.”

You can hear more of the conversation in the video above.

Andrew Cornell is Managing Editor of bluenotes