Westpac (ASX:WBC) - CEO, Peter King
CEO, Peter King
Source: Westpac
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  • Banking giant Westpac (WBC) is taking a $1.6 billion impairment charge from COVID-19
  • Westpac is blaming the charge on lower economic growth, higher unemployment, and a decline in housing prices due to the coronavirus
  • Given the outbreak is still in its early stages, however, Westpac said the true impact of the virus is still unknown
  • Speculation has been mounting that Westpac is next in line of the big banks to raise some capital after NAB tapped investors for $3.5 billion yesterday
  • Still, Westpac shares are trading over two per cent higher today, currently worth $14.98 each

Banking giant Westpac (WBC) has revealed a $2.2 billion impairment charge for the first half of the financial year ahead of its upcoming half-yearly report.

Of the $2.2 billion, $1.6 billion is attributed predominantly to COVID-19 related charges.

Westpac said new accounting standards mean it has to estimate future loan defaults before they actually occur, and the $1.6 billion impairment is based on some bleak COVID-19 expectations.

Westpac said it is bracing for some significant blows to economic growth, higher unemployment, lower investment, and a decline in residential and commercial property prices.

On top of this, the banking giant believes there is a high probability economic conditions could fall further than we’ve already seen.

Westpac said the COVID-19 outbreak is still in its early stages — meaning the true impact of the virus on customers and banks is uncertain.

CEO Peter King said the company’s packages are already providing relief to people and businesses impacted by the virus.

“The world is going through a once in a lifetime health and economic crisis and we are committed to assisting as many customers as possible to bridge this shutdown period,” Peter said.

“It is, however, unfortunate that some customers will not be able to navigate the financial and economic changes of this crisis and may not re-open. Nevertheless, we will work closely with those customers to help them through that process,” he said.

Interestingly, the bank said its $1.6 billion COVID-19 impairment only represents a 0.11 per cent impact on its common equity tier one (CET1) capital ratio capital.

However, with speculation already beginning to mount that Westpac will be the next big bank to raise some capital, today’s news might be lifting investors’ eyebrows.

Yesterday, NAB announced a hefty $3.5 billion capital raise to help offset the impact of COVID-19. Westpac is expected to follow suit.

The company’s first-half financial results are expected to be announced on May 4.

Still, it’s a happy day for our banking stocks despite Westpac’s news. Shares in Westpac are currently trading 2.15 per cent higher at $14.98 each.

WBC by the numbers
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