Australian Banks Face Rising Bad Debt For At least Another Year

Post by Sharat on June 29, 2009 · Under Australian Economy, Company News, banking, loans, mortgages · Comment

Chief executive of Australian banking major, National Australia Bank (NAB) Cameron Clyne says most banks will see the effects of increasing bad debts on their profits for at least the next four quarters, especially is unemployment continues to increase.

The NAB chief said that the slowdown that Australia was undergoing was milder than in other countries, but added that Australian banks had begun to experience an increase in credit impairment charges. Speaking on ABC television Mr. Clyne said;

“We are now very much in the same phase of the downturn and we saw that particularly, I think, in most banks’ results, with an uptick in the March half (year) with bad and doubtful debts. We think that’s going to be a feature in the next couple of halves. Obviously, consumer default really is a function of unemployment, so if unemployment trends (up) … that’s going to drive consumer default.”

The unemployment rate in Australia currently stands at 5.7 per cent, with the Federal Treasury forecasting it to increase by 3.25 per cent by June 2010 before peaking at 8.5 per cent in 2011.

Analysts have expressed concern that rising unemployment will result in increased defaults on mortgages and personal loans.

The NAB chief commenting on the lenders own portfolio said that 90 per cent of its mortgage borrowers were ahead on their mortgage payments and were maintaining their level of payments.

“So even if unemployment does go up next year, we’re … more confident than perhaps in the last cycle (that) we will be able to work with our customers to get a better outcome,” he said.

Mr. Clyne made the point that Australia’s over reliance on foreign capital rather than domestic savings for its credit funding was an issue that needs to be addressed.

“If Australia’s going to have credit growth beyond its capacity to save, then I think we need to look at opportunities to address that offshore funding reliance, because what becomes clear is, when you have a crisis as we’ve been having, you’re slightly more vulnerable if you’re relying on other markets to fund you,” he said.

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