anz credit warning gloomy times ahead

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    ANZ warning on credit provisions
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    Scott Murdoch | April 07, 2008

    THE ANZ has more than doubled its cover for likely bad debts, revealing it believes a faltering world economy could lead to greater corporate defaults.

    The bank stunned the financial markets today by increasing its provision to $975 million for the current half year, up from the $567 million for the full year that it outlined just two months ago.

    The news comes at nearly the worst time for ANZ, which is battling the hangover from Opes Prime, the fallen Melbourne stockbroker of which ANZ is the largest secured creditor.

    ANZ chief executive Mike Smith told investors today that the bank would put aside an extra $350 million to cover potential defaults and damage in its institutional portfolio.

    The extra provision is likely to cover any more damage from Centro Property, and as insurance to cover losses that may stem from the Opes Prime crisis.

    "In this changed environment it is only reasonable other issues will emerge as the credit cycle changes and we should provide for these," Mr Smith said. "You could say this is pre-emptive."

    Mr Smith said the ANZ was suffering a decline in its lending book which he believed, if replicated across the sector, could lead to lower national economics growth.

    The bank slightly raised its forecast on the hit that it will take from the troubles of ACA, the US monoline insurer, which was downgraded earlier this year to junk status.

    ANZ said in February the provision over that debt, which it is exposed through a complicated credit default swap, would be $US200 million but the estimation is now $US206 million.

    A strongly negative sentiment has emerged across the Australian banking sector today.

    Shares in ANZ were down by more than 5 per cent, as analysts estimate whether other Australian banks could be forced to increase their provisions for bad debts.

    Research by Merrill Lynch estimates ANZ has the greatest exposures out of the majors in Australia.
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