ANZ fears bad debt will treble

ANZ National chief executive Jenny Fagg says the ongoing increase in bad debt charges is being led by households. Photo / Michael Craig

ANZ National Bank says bad debt charges in New Zealand will likely treble those for last year, despite its Australian parent reporting encouraging signs that the credit cycle has bottomed out.

Mike Smith, chief executive of ANZ Banking Group, said yesterday the economic cycle was so far playing out as anticipated and the business was performing in line with expectations.

Smith said the group had positioned itself early to cope with deteriorating credit conditions which had paid off.

"We are now at a stage where we are starting to see provisions begin to bottom out. Certainly there's no deterioration in our provision outlook for this year since our May update, if anything it's even a little better."

That was not the case in New Zealand, however.

"We're the contradiction to that. We haven't seen an easing off of provisions," ANZ National chief executive Jenny Fagg said yesterday.

"We expect a pretty difficult period for New Zealanders for the next couple of halves probably, hopefully starting to ease off in the second half of 2010. But of course with provisions it's hard to predict."

Provisioning charges to ANZ National's income statement for the nine months to June were $532 million against $167 million a year earlier and for the full year were expected "to be approaching three times those of the 2008 year," Fagg said.

She said the ongoing increase in bad debt charges was unusual in that it was led by households.

"Typically it's the top end goes first and the mums and dads follow. It's been reversed this time in New Zealand. We saw signs of deterioration in family financial positions before we saw the flow through to commercial."

However, $308 million of the provision charges were from corporate exposures over the nine-month period against $58 million a year earlier.

Fagg said apart from one "lumpy" exposure she would not identify, the increase resulted from a general deterioration.

ANZ National's net profit for the period was $478 million, down 43 per cent on a year earlier according to figures from the General Disclosure Statement issued by the ANZ New Zealand Branch which was set up here in January.

However, according to the ANZ National General Disclosure Statement, formerly the set of numbers favoured by the bank, net profit for the period was $561 million, down from $960 million a year earlier.

Fagg said the Branch GDS captured $4.88 billion of residential mortgage assets shuffled from ANZ National to the ANZ NZ Branch in February, making it the more comprehensive set of figures.

The branch entity's underlying pre-tax and pre-provisioning profit was up 14 per cent to $1.44 billion with its institutional division surfing market volatility to boast a 69 per cent increase in profit to $488 million.

Underlying retail banking profit was down 11 per cent to $518 million.

The bank's bottom line was also hit by the $147 million charge for its share of the ING frozen fund settlement.