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CBA’s Bad Debt Charges Sky Rocket
Australian banking major and the nation’s third biggest bank Commonwealth Bank of Australia (CBA) announced on Thursday a nearly 1000 per cent increase in bad debt provisions contributed by its recent acquisitions Bankwest.
The big four Australian banks have largely avoided the worst of the global banking crisis having bought very few of the assets which are labelled toxic that were comprised of exposures to US property assets or loans made to individuals with poor credit records.
Though the banking system is relatively robust in Australia, banks have not been immune to the slowdown in the Australian economy and possible contraction, which has resulted in rising unemployment and a growing number of defaults..
CBA acquired Bankwest from distressed British lender HBOS and took a $825 million charge for bad debt in the calendar year 2008 compared with only an $88 million charge in 2007. CBA said that its 2008 figure was bloated specifically by a few large property related loans in New South Wales and Queensland, but declined to comment beyond that, according to the Reuters news agency.
The news continued the bad debt provision theme that has emerged of late and has plagued Australian banking equities, however the announcement did not affect CBA’s stock price as one would expect since CBA’s final acquisition price is dependent on bad debt provisions at Bankwest.
CBA said the bank was appropriately capitalised and provisioned and the final price of the acquisition would be worked out in the next two months after taking into account its capital position and provisions for bad debts.
“As advised at the time of the acquisition of Bankwest, the group is purchasing a bank which is appropriately capitalised and provisioned,” CBA said.
CBA chief executive Ralph Norris said Bankwest’s performance in the March quarter had been good.
“We are pleased with the progress that has been made since we acquired Bankwest on 19 December 2009 and performance in the March quarter has been good. We have identified many opportunities to improve the performance of Bankwest and we remain confident that this acquisition will create significant value for the group. ”
This week, Australia’s largest lender, National Australia Bank said bad debt charges jumped two-and-a-half times for the six months ended March 30, from a year earlier. And the fourth-largest lender, ANZ reported a doubling of bad-debt charges for the same period.
All the major Australian banks remain profitable, however.
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One Response to “CBA’s Bad Debt Charges Sky Rocket”
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How long before banks start a major sell off,an CBA have aquired some one else’s bad assets
at the moment they are keeping a very tight lid on highly geared, low returns,an over valued assets,these assets are surviving on very low interest rates, an banks do not want to start an avalanche of distressed sales,but for how long,something has to start giving, or is another problem lurking in the shadows, will it surface to trigger a sell off, interesting times ??