Wednesday, 10 September, 2008
Australian banks face declining profits in the next year as credit growth slows, bad debts increase and funding costs rise, Fitch Ratings said in a report.
``Loan growth is slowing, impaired assets have risen and wholesale funding costs remain at elevated levels,'' Fitch associate director Tim Roche said in a review of Australian banks, released today. ``These factors are likely to place a level of negative pressure on Australian bank profitability in the second half of 2008 and into 2009.''
Fallout from the U.S. mortgage market collapse has infected Australian banks, which are also contending with a slowing economy following a 17-year expansion. National Australia Bank Ltd.'s A$1 billion of collateralized debt obligation provisions makes it the country's biggest loser from the crisis that's sparked more than $500 billion in write downs and credit losses at the world's largest banks and securities firms.
The seven-company S&P/ASX Banks Index has dropped 25 percent this year. The economy expanded at the slowest quarterly pace in more than three years in the three months through June 30 as consumers cut spending for the first time since 1993.
Property prices dropped in all of Australia's major cities in July for the first time since just before the Great Depression. Meanwhile, homeowners are getting squeezed as banks have raised mortgage rates at a faster pace than the central bank lifted its benchmark interest rate this year.
National Australia, the nations biggest by assets, replaced its chief executive officer after boosting provisions against possible securities losses fivefold in July. Standard & Poor's cut its outlook on National Australia's credit rating and said the company may have more losses from credit market investments.
Workers Fired Australia & New Zealand Banking Group Ltd., the fourth- largest bank by market value, in July forecast the biggest full- year profit drop since 1992 as bad loans tripled this year to about a$1.2 billion from a year earlier.
Last month, ANZ fired workers and said it would cut its equity lending business after an internal investigation into the bank's role in the collapse of stockbroker Opes Prime Group Ltd.
St. George Bank Ltd., which has agreed to be bought by Westpac Banking Corp. to create the nation's biggest mortgage lender, last month reaffirmed its forecast that earnings per share will grow 8 percent to 10 percent this year.
Westpac, which last month overtook National Australia as the nation's second-largest bank by market value, said it will increase profit as much as 8 percent this year.
``Australian banks, particularly the larger, more diverse institutions, appear to have withstood the pressures of the ongoing credit crisis relatively well,'' Roche said.
Source : http://www.bloomberg.com/