One of Australia’s largest banks has flagged concerns of a recession as the financial impacts of the oil crisis have forced it to increase its economic buffers.
The National Australia Bank on Monday said it was expecting $706 million in provisions – which is money set aside for a future liability or credit impairment – due to the volatility in markets.
The bank also said it has lifted the weighting for its Australian downside economic scenario by 2.5 per cent to 45 per cent.
This pushes the metric close to 50 per cent as inflation remains elevated above the Reserve Bank of Australia’s 2-3 per cent target band at 3.7 per cent for the 12 months to February.
Inflation is expected to jump to upwards of five per cent as the impact of the oil crisis is taken into future data sets.
The CPI data, which will be handed down by the Australian Bureau of Statistics on April 29, will be instrumental in the RBA’s May interest rate call.
The central bank has noted it is attuned to recession fears while many other economists have warned of stagflation.
This is where the economy is plagued by soaring inflation, low economic growth and high unemployment at the same time.
Of NAB’s $706m impairment, the major bank said it was taking a $201m provision for “forward-looking adjustments”, which will cover the impact of the oil crisis on the business sector.
It said underlying provisions charges are expected to be $406m and flagged an extra $53m in forward-looking adjustments “where the expected risk has either not eventuated or is now reflected in underlying provisioning”.
NAB’s financial performance warning comes alongside other major companies flagging a hit from the oil crisis.
Qantas last week revealed it was slashing its domestic capacity and warned it would pay upwards of $800m more in fuel.
Virgin Australia flagged an extra $30m-$40m in fuel costs and was reducing capacity while hiking airfares to deal with the oil crisis.
The crisis has sent the price of Brent crude oil up from about US$70 per barrel to around US$95 per barrel.