ANZ bad debt warning sparks resources lending fears

Sydney / AFP

ANZ Bank on Thursday warned sour loans will cost it at least A$900 million in the first-half, and analysts warned of more trouble ahead as slumping commodity prices squeeze Australia’s resources companies.
The bank said weakness in the mining and energy sectors means it now expects bad debts to cost A$100 million ($75 million) more in the first half of the financial year than it did last month. ANZ shares tanked after the news, closing down 5.21 percent at Aus$24.02, and analysts said other banks could see more loans turn sour as Australia’s decade-long mining boom fades.
“We are continuing to see pockets of weakness associated with low commodity prices in the resources sector and in related industries,” ANZ’s acting head of finance Graham Hodges said in a statement.
“This is a challenging part of the cycle for these customers with implications for the banking sector as individual circumstances evolve.”
ANZ did not specify which loans were problematic, but local media reported they were linked to steelmaker Arrium and the United States’ largest coal miner Peabody Energy.
Peabody last week warned it may be forced to seek bankruptcy protection after missing a key debt payment, just two months after the number-two US miner Arch Coal also fell into bankruptcy.
The problems could be more systemic, however, as slowing demand from Australia’s top trading partner China has seen commodity prices crash and squeezed resources companies’ bottom lines.
The problem has hit energy and raw material companies around the world, but have been particularly felt in Australia where labour and transport costs are high. Another of Australia’s big banks, Westpac, on Thursday also said it was seeing a rise in bad loans in the mining states of Western Australia and Queensland.
“It’s around about a Aus$25 million impact in terms of an increase in provisions,” Westpac consumer banking head George Frazis told the ABC.
Macquarie analyst Victor German said that while ANZ had the largest exposure to the resources sector, Commonwealth Bank of Australia could also take a hit. “While we believe to some extent ANZ’s losses are company specific, ongoing commodity price weakness is likely to translate into higher losses for the sector,” he said in a note to clients.
ANZ is the fourth largest bank by market capitalisation in Australia, after the Commonwealth Bank, Westpac Banking Corporation and National Australia Bank.