Suncorp Increases Guidance For Bad Debt

Post by Sharat on May 27, 2009 · Under Australian Economy, Company News, Equities, banking, investments · Comment

Australian regional lender Suncorp Metway, has increased its provision for bad debts in the third quarter by over 25 percent to $1.2 billion, and announced the possibility of operating through a non operating holding company structure.

Suncorp said it was considering the new structure so that it would be better able to delineate the operating businesses and subsequent allocation of capital to businesses within the group.

Suncorp’s acting chief said a contracting economy and eroding property values had adversely affected both Suncorp and the banking sector in general.

“While we believe our full-year bad debts will be contained at the top end of previous guidance, given the downside risk associated with ongoing economic uncertainty, we think it is prudent to adjust our full-year bad debt charge guidance to the range of 125 to 145 basis points of total loans,” Mr Skilton said.

In February after announcing first half results, the regional lender said it expected full year bad debts to rise to between 100-130 basis points of its total loan book. The bank’s Tier 1 capital ratio increased to 11.39 per cent whilst its capital adequacy ratio rose to 13.24 per cent.

The new operating structure has not been confirmed as the lender had some concerns about maintaining the credit rating of the entire group.

“As part of the final phase of the LER process, the board has approved further investigation into the possibility of establishing a non-operating holding company (NOHC) as the listed entity owning the banking, general insurance and wealth management subsidiaries,” the bank said.

“While the board believes a NOHC structure has the potential to deliver greater transparency of the operating businesses and allocation of capital within the group, a number of structural and regulatory issues have to be addressed before deciding whether to put a NOHC proposal through a shareholder approval process.”

Suncorp expects to give an update on the feasibility of the new structure in the September.

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