Banks tipped to return cash

Westpac Banking, Australia's largest lender, and its biggest rivals may begin returning A$16 billion ($19.6 billion) of capital to investors next year as bad debts ease, says Credit Suisse Group.

"A lot of capital's going to get released," James Ellis, a banking analyst at Credit Suisse, said yesterday in Sydney. "We'll see a capital management theme coming through. Stock buybacks have been the mechanism traditionally used."

Funds would be available for shareholders even after accounting for potential takeovers by Australia & New Zealand Banking Group and National Australia Bank, Ellis said.

Capital ratios, key measures of banks' financial strength, would climb without additional fundraising as the risk of defaults diminished with the financial crisis coming to an end, he said.

Australia's four largest banks, including Commonwealth Bank of Australia, have bolstered capital ratios to protect themselves from a surge in soured loans.

Those bad debts will peak this year, and after that, excess funds will become a drag on earnings, according to Credit Suisse.

Arjan van Veen, a Sydney insurance analyst at Credit Suisse, said Australia's biggest banks might also be more likely to consider buying Suncorp-Metway, the banking and insurance company that last week reported a 40 per cent slump in fiscal-year profit, as it was easier to evaluate potential bad debts.

- BLOOMBERG