Bad debts hovering over ANZ

Mike Smith

ANZ Banking Group Ltd CEO Mike Smith says he expects the bank's revenue to continue to rise, but has warned bad debt provisions will also increase.

"Basically revenues are likely to continue to increase but we will have an increase in provision charge so therefore one has to offset the other," Smith told ABC Television last night.

Smith said he expected provisions to be around A$U1.4 billion to A$U1.5 billion over the coming half years.

"We're really saying we've got four halves where provisions are about the A$U1.4, $1.5 number billion."

On Wednesday, ANZ reported a 28 per cent plunge in first half profit after bad debts and losses on derivative trades spiked, and warned further loan defaults will hurt its annual earnings.

Net profit for the half year ended March 31 fell to $1.42 billion, from A$U1.96 billion in the same period last year.

Provisions almost doubled to A$U1.4 billion, from A$U726 million.

Smith said the group "hopes" to make an acquisition this year, amid reports the company may be in the race for the Royal Bank of Scotland's (RBS) Asian assets.

Smith would not confirm if the bank was specifically looking at RBS's Asian retail and commercial assets.

"All I would say is that we're one of the interested parties looking at assets within Asia," he said.

The Wall Street Journal reported last month that RBS had short-listed three bidders - ANZ, HSBC Holdings and Standard Chartered - for its Asian assets in a sale that could fetch up to US$1.8 billion (A$U2.48 billion), citing people familiar with the situation.

Smith said the bank might have to raise capital for an acquisition.

"I think you have to look at capital on a dynamic basis.

"Capital has to be raised when you need it, if there is an acquisition, for example."

Smith signalled the bank may be cautious about passing on some or all of any future cash interest rate cuts by the Reserve Bank of Australia (RBA) to its customers because its funding costs remained high.

"It's in all of our interest to cut rates as much as we can.

"It will reduce the potential bad debt level.

"However we also have to realise that the official rate from the RBA has absolutely no correlation to our funding rate and where we get our funding."

- AAP