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$2.2 billion profit hit: Is the Westpac share price a buy?

Westpac (ASX: WBC) has announced a large profit hit before its releasing its official half year result.

What is Westpac?

Westpac is one of Australia’s ‘Big Four’ banks and a financial-services provider headquartered in Sydney. It is one of Australia’s largest lenders to homeowners, investors, individuals (via credit cards and personal loans) and business.

What Westpac announced

The major ASX bank announced it expects $2.24 billion impairment charges in the first half of FY20.

Westpac’s impairment charge includes approximately $0.6 billion from individually assessed provisions and net write-offs together with approximately $1.6 billion of additional impairment charges mostly relating to COVID-19 impacts. Westpac is required to estimate expected future impairments and increase provisions before new defaults occur.

Westpac described the $1.6 billion impairment as a relatively small impact (a 11 basis point (0.11%) decrease) on the CET1 capital ratio. This is because the higher charge lifts provision levels and reduces the regulatory expected loss capital deduction to $0. At 31 March 2020 the CET1 ratio is expected to be 10.8%.

The bank noted that the outbreak is still in the early stages and the impacts remain highly uncertain. While the impairment provisions have begun to increase, the extent of future additional charges will depend on the severity and duration of the economic decline as well as the size of the stimulus.

Westpac CEO Peter King said: “The world is going through a once in a life-time health and economic crisis and we are committed to assisting as many customers as possible to bridge this shutdown period. Our packages are already providing relief to individual and business customers.

“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.”

Is the Westpac share price a buy?

It’s clear that Westpac has warned the economic pain could become much worse as time goes on if there isn’t a V-shaped recovery.

I’m not compelled to buy Westpac right now. Its share price could drop even further and the pain may be prolonged. I’d much rather buy these growing technology shares as well:

Disclosure: at the time of publishing, Jaz does not have a financial interest in any of the companies mentioned.

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