Bad Debt Charges by Australian Banks May Triple, Lehman Says
By Patricia Kuo
March 3 (Bloomberg) -- Australia's four biggest banks may need to triple provisions for bad debts as companies struggle to pay higher borrowing costs, analysts at Lehman Brothers Holdings Inc. said.
Commonwealth Bank of Australia, National Australia Bank Ltd., Westpac Banking Corp. and Australian & New Zealand Banking Group Ltd. have lent an estimated A$6.53 billion ($6.1 billion) to troubled companies, the Lehman report said. The four banks booked A$2.27 billion of provisions for bad debt in their 2007 fiscal year, the analysts said.
Companies face the highest interest charges in 13 years as the nation's central bank attempts to rein in accelerating inflation. The benchmark interest rate has been raised three times since August to 7 percent.
``We highlight the magnitude of risk in context to the level of provisions taken in the 2007 fiscal year and the need for these to rise,'' the analysts led by Hong Kong-based Pradeep Mohinani wrote in a research note on Feb. 29. ``The bigger question is whether these problem corporates are the tip of the iceberg or an anomaly reflecting market conditions.''
Companies liable to have difficulty repaying debt include Allco Finance Group Ltd., a Sydney-based asset manager whose share price has fallen 90 percent this year and Brisbane-based ABC Learning Centres Ltd., the world's biggest publicly traded owner of child-care centers, the report said. Southport, Queensland-based fund manager MFS Ltd. and Centro Properties Group, facing an April 30 deadline on A$4.9 billion of debt are also on the list, Lehman said.
Default Protection
Sydney-based Commonwealth Bank of Australia has the largest amount of lending to the companies facing financial stress, at A$2.4 billion, followed by Melbourne-based ANZ, with A$1.85 billion, according to Lehman. The cost of protecting Australian bank bonds from default will rise over the next three months as bad debts increase, the analysts said.
Credit-default swaps on Commonwealth Bank's subordinated debt jumped 10 basis points in Sydney trading today to a record 165 basis points. Contracts on ANZ rose 10 basis points to 165, according to Commonwealth Bank's prices. That means it costs $165,000 a year to protect $10 million of ANZ's debt from default for five years. In the first half of last year, credit- default swaps on Australian banks traded below 10 basis points, data compiled by Bloomberg show.
Lending to Australian consumers and businesses by banks and other financial institutions rose 16.4 percent in January from a year earlier, reinforcing speculation the central bank will further increase interest rates to cool the fastest inflation in 16 years. |
