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.

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.

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