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National Australia Bank and ANZ yesterday said rising bad debts were eroding profit growth as losses spread from financial markets to the wider economy.
National Australia Bank - owner of New Zealand's BNZ and Australia's largest bank by assets - said quarterly earnings stalled at A$1.1 billion ($1.4
billion) as provisions for bad debts rose 19 per cent from the preceding three months. ANZ forecast first-half profit would drop by more than 15 per cent from a year earlier.
The global financial crisis is catching up with Australian lenders, which have so far avoided the losses posted by Northern Hemisphere lenders such as Deutsche Bank and Bank of America.
Macquarie Group, Commonwealth Bank of Australia - owner of ASB in New Zealand - and Suncorp-Metway this week all said profits would fall as Australia's 17-year economic expansion falters and delinquent loans rise.
"The bad debts now are mainly in the corporate area and that's manageable, but if they started gathering steam in the mortgage area, the banks will have something to worry about," said Rob Patterson, at Argo Investments in Adelaide. "While the Australian financial sector is holding up when compared to its international peers, the risk is rising unemployment and mortgage stress."
National Australia Bank said "further weakness" was expected in its Australian banking operations over the remainder of its financial year to September 30.
The Melbourne-based company set aside A$824 million for bad and doubtful debts during the quarter, with A$521 million of this for specific loans and the remaining A$303 million in collective provisions reflecting a drop in customer credit ratings, it said in a trading update.
Chief executive Cameron Clyne, who took over from John Stewart on January 1, said the company was seeing "more of a move into general stress" among small and medium-sized companies, particularly in the finance, property and retail industries.
"One of the key determinants will be unemployment," Clyne said.
The company's shares, down 44 per cent during the past year, rose 3c to A$18.67 yesterday afternoon in Sydney. ANZ gained 44c, or 3.57 per cent, to A$12.78, trimming its slump over the past 12 months to 50 per cent.
Late home repayments triggered a 12 basis point rise in Australia's prime residential mortgage-backed securities in November from the month before, Standard & Poor's said on Thursday. More than A$842 million of all prime loans reported have been in arrears for more than 90 days, it said.
"The November arrears data reveals that an increasing number of prime borrowers are experiencing some degree of mortgage stress," the ratings company said.
Australia's residential property market shows signs of stalling after house prices fell in the three months through December.
That still compares favourably to the US, where a record 19 million homes stood empty at the end of December.
- BLOOMBERG
