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Overdue Westpac mortgages from New Zealand homeowners rose 40 per cent in the three months to December 31, figures from the bank showed yesterday.
In its quarterly trading update, Westpac Banking Group said the proportion of its New Zealand mortgage loans 90 days or more in arrears rose by 40.4 per cent during the December quarter to 0.66 per cent.
The bank said this indicated "signs of increasing stress as economic conditions deteriorate".
Westpac had just over $31 billion worth of New Zealand housing loans at the end of the September quarter.
In Australia 90 days past due home loans rose by 19.4 per cent to 0.44 per cent which was "in line with cycle, but still relatively benign".
Across the Australasian group, bad and doubtful loans were up A$930 million ($1.16 billion) with 9 per cent of that "mostly New Zealand" mortgages.
In commentary, Westpac said its New Zealand business was "operating satisfactorily in a very tough environment".
"Revenues are stronger, supported by improved margins, while impairment charges are higher in both the business and housing portfolios, reflecting the weak economic situation."
Yesterday's New Zealand data from Westpac is broadly in line with that from BNZ owner National Australia Bank last week, which showed BNZ's level of bad loans to total assets blew out by more than 50 per cent in the quarter.
Westpac New Zealand's Australian parent, Westpac Banking Corp, said overall profit fell 2 per cent in the three months to December 31 as bad debts outweighed increased fee income from last year's purchase of St George Bank.
The Sydney-based lender earned about A$1.2 billion and set aside A$800 million for bad and doubtful debts during its fiscal first quarter, it said.
Bad debts rose from A$144 million in the same period a year ago.
"With global economic conditions continuing to be volatile, operating conditions will remain difficult," said Gail Kelly, who took over as chief executive officer a year ago, in a statement sent to the Australian stock exchange.
Kelly's A$14 billion acquisition of St George boosted Westpac's market share and increased fee and lending income at a time of slowing economic growth and rising defaults. Westpac's shares have lost 34 per cent since Kelly took over in February last year, the smallest decline among the nation's four biggest banks.
Westpac's Tier 1 capital ratio, a measure of financial strength, was at 8.3 per cent at December 31. The bank said its access to funds benefited from the re-opening of global capital markets, with about A$13 billion of term wholesale funding completed to date.
It also raised more than A$3.8 billion in equity in the last fourth months.
While profit growth is stalling, Australia's banks have avoided the losses posted by global competitors including Citigroup. Local lenders are benefiting from demand for sales of government-guaranteed bonds, Australia's central bank said yesterday.
The nation's biggest banks sold more than US$45 billion of state-guaranteed notes since November 28, when the AAA-rated government first backed their funding in a bid to thaw credit markets frozen by Lehman Brothers Holdings Inc.'s bankruptcy, according to Bloomberg.
Commonwealth Bank of Australia, the nation's second-biggest lender, last week said bad debts rose almost five-fold to A$1.6 billion in the first half on loans to failed companies including ABC Learning Centres. Net income climbed 9 per cent to A$2.57 billion in the six months to December 31.
Rivals National Australia Bank and Australia & New Zealand Banking Group said this month that rising bad debts are eroding profit growth as losses spread from financial markets.
Australia may be following the US, Britain, New Zealand and Europe into its first recession since 1991 after the economy grew 0.1 per cent in the third quarter, the weakest pace in eight years. Westpac said its retail and business banking had a "solid start" to the year, with revenue growth offset by higher impairments.
