Bad loans hit New Zealand banks harder than Aussie parents

New Zealand's poor economic performance relative to Australia means this country's two largest banks have suffered disproportionate loan losses compared to their parent groups' core Australian operations.

The impact on local profits is strengthening the chances that market leader ANZ National will reduce its exposure here when conditions improve, says Australian banking analyst Brett Le Mesurier.

ANZ Banking Groups's September year results show New Zealand subsidiary ANZ National's provisions for loan losses almost doubled in the second half of the period, rising 87 per cent to A$352 million even as the Australian business's provisions fell 21 per cent to A$1.06 billion.

New and increased provisions in New Zealand for the period were almost exactly a third of those for its Australian counterpart, whose balance sheet is more than four times bigger.

At New Zealand's second-largest bank, Westpac, impairment charges - a slightly different measure of bad debt costs - increased 111 per cent during the half year, to $388 million, while the same number for Wespac's corresponding Australian operation rose 46 per cent to A$327 million ($416 million).

Westpac NZ's impairment charges for the period were 93 per cent of those at its Australian counterpart, whose balance sheet is more than five times the size.

Around half of the increase in Westpac's impairment charges for the full year related to just two "large single names", the bank said when it released its results.

"As the Australian economy improves the banks are still finding troubles elsewhere in the world with New Zealand being an obvious source of problems for ANZ in particular," Sydney-based Le Mesurier, of Axiome Equities, said yesterday.

"[ANZ Group chief executive] Mike Smith has previously indicated that he'd rather have more in Asia and less in New Zealand."

He believed ANZ would likely wait until economic conditions improved before looking to move out of New Zealand. "They're not desperate."