Banks' bad debts tipped to triple

Australia's biggest four banks, which own New Zealand's big five, might need to triple bad debt provisions because of exposure to financially troubled companies, analysts say.

Lehman Brothers estimates Australia's big four have lent $A6.5 billion ($NZ7.57 billion) to companies struggling to repay debt. They include Allco Finance Group, ABC Learning Centres, MFS and Centro Properties Group.

That compares with the $A2.27 billion of provisions for bad debt they booked during 2007.

Commonwealth Bank of Australia, Australia & New Zealand Banking Group, Westpac and National Australia Bank own New Zealand's ASB, ANZ, National Bank, Westpac and BNZ.

Lehman argues the exposure will affect profitability and hastens their need to raise more capital. The analysts say they are not suggesting the banks ultimately face losses equal to their exposure.

"Rather, we highlight the magnitude of risk in context to the level of provisions taken in 2007 and the need for these to rise," they say. "The bigger question is whether these problem corporates are the tip of the iceberg or an anomaly reflecting market conditions."

Lehman says deteriorating asset quality is a key theme for Australian banks and a concern given the lack of exposure transparency.

ASB parent Commonwealth Bank has lent the most to troubled firms, $A2.4 billion. ANZ has loaned $A1.85 billion, National Australia Bank A$1.4 billion and Westpac $A845 million.

- © Fairfax NZ News