Banks' bad debt charges set to blow out again: Tripe

The major banks bad debt charges are likely to blow out again in about 12 months time, predicts a banking expert.

Wednesday, September 5th 2012, 9:51AM

by Jenny Ruth

Most banks have been reporting falling bad debt charges lately and indicating they believe the worst fallout from the global financial crisis and domestic recession is behind them.

However, Massey University;s head of banking studies, David Tripe, says that, collectively, bank's non-performing loans are currently about 1% of the total compared with about half that five years ago.

"If you look at the trends, bad debt expense is hardly any higher than it was in 2007/08 but they have a lot more non-performing loans."

For example, ANZ Bank's charges against profit for bad loans in the nine months ended June 30 were $151 million while its total individually impaired assets were $1.47 billion and its loans 90 days past due but not impaired totalled another $246 million.

In the nine months ended June 2008, ANZ's charges against profit for bad loans were $167 million while its total individually impaired assets were $213 million and its loans 90 days past due but not impaired were $254 million.

Westpac's charges against profit in the nine months ended June 30 were $131 million and its individually impaired assets were $955 million and its loans 90 days past due were $196 million.

In the nine months ended June 2008, Westpac's charges against profit for bad debts were $97 million and its individually impaired assets were $199 million and its loans 90 days past due were $271 million.

BNZ and ASB's accounts show a similar pattern.

"They're certainly enjoying some favourable circumstances with their non-performing loans but I don't think it's sustainable at the current low level," Tripe says.

"I would be very surprised if they're not reporting higher levels of bad and doubtful debt expense come 12 months time."

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