Bad Aussie Resource Debts Weigh on Bank Profitsby and
ANZ, NAB, Westpac first-half profits missed analyst estimates
The major banks have seen their debt impairments increase
Bad-debt provisions are clouding the outlook for Australian banks, already feeling the pinch from reduced margins.
Australia & New Zealand Banking Group Ltd., National Australia Bank Ltd. and Westpac Banking Corp. all reported first-half cash profits last week that were worse than analysts had predicted, as impairments increased from six months earlier. Commonwealth Bank of Australia, whose fiscal year is different to its peers, said on Monday that it had also seen a rise in bad and doubtful debts in the three months through March.
Lenders in Australia are contending with an economy that’s shifting away from its reliance on mining and seeking alternative sources of growth. The downturn in commodities is putting pressure on related businesses, while there are risks of increased mortgage delinquencies in resource-focused regions such as Western Australia and Queensland. The S&P/ASX 200 index that tracks bank stocks has fallen more than 9 percent this year.
The following charts illustrate the shifting landscape for the three major banks that reported first-half results this month.
CHART 1: Bad-debt provisions for both ANZ and Westpac soared to the highest level in six years in the six months ended March 31.
CHART 2: The uptick in souring loans comes as competitive pressures, stricter banking rules and funding costs help to put the squeeze on net interest margins.
CHART 3: First-half profit figures for the three lenders all fell short of the average predicted by forecasters in Bloomberg surveys. ANZ’s cash profit, which excludes one-time items, dropped 24 percent to A$2.78 billion ($2.04 billion) and was below the A$3.58 billion mean analyst estimate.
CHART 4: The return on equity generated by the Australian banks is being crimped not only by pressures on profitability, but also by their recent need to increase capital. The country’s four biggest lenders, including CBA, raised a combined A$20 billion in equity capital last year to meet regulation aimed at bolstering their defenses in the event of a downturn.
CHART 5: With profits under pressure, the amount of cash that banks can pass on to shareholders could also be curbed. ANZ in the most recent period cut its dividend for the first time since 2009, while Westpac and NAB both stood pat.