Australian banks face earnings drag as bad debts climb
Reuters
Published Apr 27, 2016 06:57
Australian banks face earnings drag as bad debts climb
By Swati Pandey
SYDNEY (Reuters) - A bad debt blowout is likely to end a dream run of six straight years of record profits for Australia's banks as they report half-yearly earnings next week, piling pressure on a sector already on the defensive over a series of financial scandals.
The increase in bad debts of about A$3.4 billion (1.7 billion pounds), according to an estimate by UBS, could pull interim earnings for at least one of the top four lenders lower, while the others should continue to see profit growth albeit at a slower rate than during the heyday of the commodities boom.
Dark clouds are gathering over Australia's financial sector, which sailed through the global crisis but now faces slowing profit growth, rising defaults linked to the commodities price bust and questions over corporate responsibility in an election year when bank misconduct is shaping as a hot issue.
"This is going to be an interesting time for the banks. Capital management and asset quality are the two main issues," Bell Potter analyst TS Lim said.
No.4 lender ANZ Banking Group (AX:ANZ) will post an over 5 percent drop in cash profit for the six months to March on Tuesday, the first such fall since March 2009, according to Thomson Reuters I/B/E/S, marking the end of six golden years of consecutive record profits for the so-called Big Four lenders.
Analysts have downgraded earnings per share estimates for each of the four major banks by 1-2 percent, weighed by concerns about credit quality and dividend cuts.
Australian bank shares are among the worst performers on the benchmark index (AXJO) so far this year, down 5.6 percent to 13 percent.
DEBT DISTRESS
The Big Four have together lent about A$66 billion to the resources sector, about 1.8 percent of their combined loan book of A$3.6 trillion, latest filings show.
ANZ is the most exposed, with its mining book at 2.2 percent of total loans. Last month, ANZ warned that bad debt charges for the first-half-ended March could almost double.
"Many people are expecting a dividend cut from ANZ. Some of the large single-name corporate exposures are going to cause an increase in bad debts but it's not a systemic issue," Bell Potter's Lim said.
The banks have also had to wear exposure of more than A$3 billion to several high-profile corporate collapses in recent months, including those of steelmaker Arrium (AX:ARI), retailer Dick Smith (AX:DSH) and mining magnate Clive Palmer-owned Queensland Nickel.
But the banks should not expect any sympathy from the Australian public after a string of scandals over wealth mismanagement, insurance scams and benchmark interest rate rigging has tarnished their reputations.
Hoping to head off opposition Labor Party calls for a high-powered judicial probe into the industry, the Australian Bankers Association last week promised unprecedented reforms to protect consumers and boost transparency.
Get The App
No.3 lender Westpac Banking Corp (AX:WBC) will kick off bank earnings on Monday with cash profit expected to grow by 7.7 percent for the six months-ended March 31.
For top lender National Australia Bank (AX:NAB) that measure is likely to grow by around 2 percent to A$3.35 billion when it reports on Thursday, according to the I/B/E/S estimates.
No.2 lender Commonwealth Bank of Australia (AX:CBA) follows a June-ending calendar year and will report third quarter numbers in May.
Written By: Reuters
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.