Westpac Warns of More Bad Debt

Post by Sharat on December 15, 2008 · Under Company News, banking · 1 Comment

Westpac, Australia’s largest bank by market capitalisation says that it intends to adhere to more prudent lending standards and scale back on lending to riskier highly leveraged companies, in order to reduce its exposure to corporate defaults.

The Australian banking major has repeatedly warned that its bad-debt level would increase as the Australian economy has begun to slow and companies face increasing financial stress.

Chairman Ted Evans and chief executive Gail Kelly last Thursday drew sharp criticism from shareholders over Westpac’s previous lending to failed corporate clients such as Allco and ABC Learning Centres.

Mrs. Kelly told investors at her first Westpac Annual General Meeting, that the bank would now be more cautious in lending to companies that were highly geared in light of the $400 million unsecured exposure to the two companies. Westpac also has a $240 million exposure, secured and unsecured, to the embattled investment group Babcock and Brown.

“The sort of issues that have led to some of the corporate difficulties and exposures have been leverage, and leveraging on the back of companies that have relied on asset prices ever increasing. So again you take stock and take those lessons on board and make sure we absolutely understand them. I think from now any good bank is not going to get involved in the big syndications of the banks. When credit is freely available you can understand why one would end up in a big banking syndicate because there is better pricing.” Mrs. Kelly said.

The Australian banking major continued to commit to maintaining its dividend for the financial year, though it warned that the large increases that shareholders have become accustomed to over the last few years may not be sustainable.

There was strong resistance by shareholders to the board’s motion to increase the size of the non-executive director’s fee pool from A$3 million to A$4.5 million. The move was almost scuttled by proxies.

Westpac has so far set aside A$ 1 billion to cover bad or doubtful debts and again warned that this is likely to increase in the coming year however it did say that potential bad loans were only a small proportion of Westpac’s A$ 300 billion loan portfolio.

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One Response to “Westpac Warns of More Bad Debt”

Australian Banking Majors Sound Warning Over Rising Bad Debt : money-au.com.au on December 19th, 2008 8:01 pm

[...] Westpac at its AGM last week also warned over rising bad debt and pledged to scale back lending to highly leveraged borrowers after drawing sharp crisitism by shareholders for its exposure to Allco and ABC Learning Centres. Westpac has so far set aside A$ 1 billion to cover bad or doubtful debts, though it added that this was only a small proportion of its total loan portfolio. [...]

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