Westpac, Australia's second-largest bank, reported a jump in bad loans yesterday with its New Zealand operations accounting for a third of the increase in bad debts.
Westpac's third-quarter trading update sent its shares sliding 3 per cent and triggered sharp falls in major rivals on concern that rising charges forbad loans could crimp future profits and dividends of banks.
"Their bad-debt provisions have risen quite a lot and the market is taking heed of that," said Martin Angel, dealer at Patersons Securities.
Westpac said bad-debt charges rose 6 per cent between the second and third quarters to A$865 million. Total impaired assets rose by 24 per cent to A$865 million, one-third of which, or A$230 million ($282 million), came from New Zealand, the bank said. Of that, A$135 million related to just two names.
New Zealand operations contribute around 10 per cent of the group's cash earnings. A Westpac NZ spokesman yesterday said the bank would not identify the borrowers referred to but it has been reported that textile manufacturer Lane Walker Rudkin Industries, which collapsed in April, owed Westpac $111.4 million.
Westpac said that overall, stressed assets rose to 2.8 per cent of its loan book, up from 2.1 per cent just three months earlier. But the bank said cash profits had held steady at about A$1.1 billion for the three months ended June 30 and that total lending had actually grown by 1.3 per cent from the previous quarter, thanks largely to the irrepressible Australian consumer.
"Clearly we are seeing economic conditions improve but there's still a little bit of fragility out there," chief executive Gail Kelly said.
The market shrugged off her comments about improving economic conditions and instead seized on her remarks on the bad-debt cycle, which she said had yet to peak.
Westpac and other local banks have so far weathered the global financial crisis better than many overseas rivals, using their relative strength to raise about A$11 billion in equity since November and to expand both at home and abroad.
