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Aussie bad debt to increase

Aussie bad debt to increase

(5 March 2008 – Australia) A Lehman Brothers report has indicated that Australia’s Big Four may need to triple their bad debt provisions because of companies struggling to cope with higher borrowing costs. The Lehman report indicated that the Big Four combined have lent an estimated $A6.53 billion to companies deemed to be in financial stress.

However, they have only booked $A2.27 billion of provisions for bad debt in the 2007 fiscal year.

The report also indicates that there are two possible reasons for the problems faced by companies. They are either the tip of the iceberg and thus part of a larger problem or an anomaly reflecting the current unstable market conditions.

According to Lehman, CBA has the largest amount of lending to financially stressed companies, with $A2.4 billion, followed by ANZ with $A1.85 billion.

The report also predicated that the cost of protecting Australian bank bonds from default will rise over the next three months as bad debts increase.
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