ANZ, Westpac debts 'small and manageable'

ANZ, Westpac debts 'small and manageable'

The news of increased bad and doubtful debts at ANZ and Westpac saw the banks' share prices drop sharply yesterday, but the numbers are "relatively small" according to BondAdviser.


ANZ announced an increase of $100 million to its bad and doubtful debts on Thursday, bringing its total expected credit charge for the first half of 2016 to $900 million.

Acting chief financial officer Graham Hodges said that while the overall credit environment remains "broadly stable", the bank is continuing to see "pockets of weakness associated with low commodity prices in the resources sector and in related industries".

Westpac has also indicated that it could increase debt provisioning in its institutional business, adding that it is beginning to see consumer loan stress (predominantly in the mining states of Western Australia and Queensland).

According to fixed income research house BondAdviser, Westpac has flagged a $25 million increase in its provisions (up 10 per cent on the prior corresponding period).

"Whilst these numbers are relatively small and manageable for both the ANZ and Westpac, investors reacted with the ANZ, CBA, NAB and WBC share prices all down," said BondAdviser.

ANZ's share price was down 3.41 per cent by the close of trading on Tuesday; Westpac fell 2.98 per cent; CBA was down 2.27 per cent; and NAB slipped 2.44 per cent.

"Investors continue to be concerned as the reduction in profitability will place increased pressure on the ability to maintain dividends," said BondAdviser.

"To add to the credit tightening, the ANZ has followed the other three major banks in cracking down on loose lending practices applied by mortgage brokers.

"This includes taking a tougher line when assessing borrowers’ living expenses and discounting non-regular income such as bonuses and overtime when making their serviceability calculations.

"These changes are expected to come into effect from the fourth of April. As the four major banks have an estimated 78 per cent market share of the Australian home loan market, the tightening of lending standards should start to have an impact on the housing market over the second half of 2016," said BondAdviser.

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