Debt keeps weighing on banks
(24 August 2009 – Australia) In a third quarter trading update Westpac reported steady profits from last quarter, once again pulled back by bad debts.
While the unaudited trading update showed a solid and steady A$1.1 billion profit for the quarter, it was the bank’s bad debts that weighed on the entire banking industry.
Stressed loans increased from 2.1 percent of total exposures at the end of March to 2.8 percent at the end of June.
Westpac’s A$865 million in total impairments, coupled with a large increase in the group’s watchlist facilities, hit bank shares of each of the Big Four.
Facilities classed as watchlist are performing but are typically demonstrating some weakness in operations or cash flow. The rise in watchlist facilities was concentrated in commercial lending, with 76% of those facilities being secured.
The unexpected result saw the single day of trading hit the banks; Westpac fell 2.5 percent and each of its Big Four competitors fell by even greater numbers.
Total lending for the quarter increased 1.3 percent, with particularly good growth in Australian mortgages, the bank indicated.
Lending in New Zealand, Institutional and business banking was slower, which Westpac attributed to a desire of businesses to reduce gearing at this point in the cycle and the relatively weaker operating conditions in New Zealand.
Growth in deposits over the quarter was strong, up 2.3 percent, with deposit growth fully funding new lending.
While impaired assets increased 24 percent, principally from commercial facilities in the Institutional bank and in New Zealand, troubles may soon come to an end.
Westpac chief executive, Gail Kelly, said that given the improving economic fundamentals and the extensive reviews of the bank’s portfolio, the rate of increase in stressed exposures is unlikely to be repeated in coming months.
Stressed loans increased from 2.1 percent of total exposures at the end of March to 2.8 percent at the end of June.
Westpac’s A$865 million in total impairments, coupled with a large increase in the group’s watchlist facilities, hit bank shares of each of the Big Four.
Facilities classed as watchlist are performing but are typically demonstrating some weakness in operations or cash flow. The rise in watchlist facilities was concentrated in commercial lending, with 76% of those facilities being secured.
The unexpected result saw the single day of trading hit the banks; Westpac fell 2.5 percent and each of its Big Four competitors fell by even greater numbers.
Total lending for the quarter increased 1.3 percent, with particularly good growth in Australian mortgages, the bank indicated.
Lending in New Zealand, Institutional and business banking was slower, which Westpac attributed to a desire of businesses to reduce gearing at this point in the cycle and the relatively weaker operating conditions in New Zealand.
Growth in deposits over the quarter was strong, up 2.3 percent, with deposit growth fully funding new lending.
While impaired assets increased 24 percent, principally from commercial facilities in the Institutional bank and in New Zealand, troubles may soon come to an end.
Westpac chief executive, Gail Kelly, said that given the improving economic fundamentals and the extensive reviews of the bank’s portfolio, the rate of increase in stressed exposures is unlikely to be repeated in coming months.
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