Big Four have no shocks in sight
The Age
Wednesday July 1, 2009
THE Big Four banks are expected to avoid the worst of the bad debt excesses of the early 1990s recession but loan write-downs and losses will still be equal to every dollar of profit they make for the financial year.Senior bank executives have indicated to investors that while they still expect their bad debt positions to get worse over the remainder of this year and into next year, the prospect of another post-Lehman Brothers shock to the banking system appears to have passed.The extent of the latest increase in the sector's bad debts will be provided by the biggest lender, Commonwealth Bank, when it reports its annual results for the year that ended yesterday in August.But analysts at UBS now expect that the sour loan provisions of the majors - Commonwealth, ANZ, Westpac and National Australia Bank - will reach $16 billion this year compared with their likely combined earnings of $15.5 billion.And with the economy continuing to deteriorate, the forecast is for the Big Four to write down or even write-off debts as much as $50 billion over the four years between 2008 and 2011, when the recovery is expected to be well under way.According to presentations made by the majors to last week's UBS financial services sector conference, none of the major banks are prepared to call the top of the latest bad debt cycle.This, they suggested, could still be six to 12 months away - and even 18 months from now - given that consumers and businesses are preparing for what could be a difficult early part of 2010.But the banks say they are getting mixed signals on loan performances, with consumers holding their own in the face of rising unemployment while the key small-business sector is doing it tough.This is reflected in the value of non-performing loans on the major banks' books, which has risen 92 per cent this year and now stands at $21 billion.While the number of bad loans continues to rise, the rate of increase was expected.There has been no sudden deterioration in the situation, which happened in the last recession and almost drove Westpac to the wall.The banks say that their finances this time are being helped by four factors: much lower interest rates; better capital positions after their recent round of fund-raising; a much earlier identification of problems being experienced by customers, and the Government's stimulus packages.But the banks are forecasting that the domestic economy will take longer to mend than the last recession.
© 2009 The Age