MyState increases loan provisions, proposes capital raise

MyState Ltd has increased its collective provision and general reserve for credit losses from approximately $3 million to $4 million, after re-evaluating default risks associated with the economic fallout from the COVID-19 crisis.

MyState’s managing director and CEO, Melos Sulicich, stressed that the increase in collective provisions “does not reflect any significant deterioration” in the credit quality of MyState’s loan portfolio.

“We are assuming a slow economic recovery, and the increased provision reflects significant changes to the economic outlook impacting growth in the economy, unemployment and assumptions in respect to residential property prices,” he said.

“MyState Bank’s loan book predominantly consists of high-quality housing loans, the vast majority of which are owner-occupied with a loan-to-valuation ratio of less than 80 per cent.”

Reflecting on the mortgage deferral support offered to borrowers in lieu of the crisis, Mr Sulicich noted that some customers have already opted to resume repayments on their home loan.

MyState has deferred approximately $464 million in loans since the onset of the COVID-19 crisis, over 96 per cent ($448 million) of which are for residential mortgages.  

According to the latest data from the Australian Banking Association (ABA), members have deferred repayments on over 700,000 loans ($211 billion) since the onset of the COVID-19 crisis, over 61 per cent of which are for residential mortgages.

Investment management firm Morgan Stanley estimates that approximately 20 per cent of such borrowers would default on their debt, triggering a $4.3 billion rise in credit losses across the major banks alone.

MyState to raise capital

Meanwhile, MyState has announced that it would conduct a fixed-income debt investor call in preparation for a potential tier 2 subordinated note issue, valued at approximately $25 million.

According to MyState, the issue, which is subject to market conditions, would to be launched “in the coming days”.

The issue is expected to be rated ‘Baa3’ by Moody’s Investors Service, which recently assigned MyState an investment grade issuer credit rating of ‘Baa2/P-2’ (long term/short term).

Moody’s claimed that the issue is designed to “further improve” the bank’s regulatory capital efficiency.