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Westpac Banking Corporation Ltd, Australia's second-biggest lender, reported a jump in bad loans on Friday, leading bank stocks lower as investors turned a deaf ear to its overall message that profits were holding up well.
Westpac's third-quarter trading update sent its shares sliding four per cent and triggered sharp falls in major rivals on concern that rising charges for bad loans could crimp future profits and dividends of banks.
Shares in all four major banks dropped heavily following the news, with NAB slumping 4.46 per cent to $25.68, ANZ Banking Group losing 3.77 per cent to $18.88 and Commonwealth Bank of Australia sliding 2.13 per cent to $44.02 at 1407 AEST.
Westpac shares were 4.03 per cent lower, at $22.37, having fallen as low as $22.30 against a 2.18 per cent fall in the benchmark index.
"[Westpac's] bad-debt provisions have risen quite a lot and the market is taking heed of that," said Martin Angel, dealer at Patersons Securities Ltd.
Westpac said bad-debt charges rose six per cent between the second and third quarters to $865 million. Overall, stressed assets rose to 2.8 per cent of its loan book, up from 2.1 per cent just three months earlier.
But the bank said its cash profits had held steady at about $1.1 billion for the three months ended June 30 and that total lending had actually grown by 1.3 per cent from the previous quarter, thanks largely to the irrepressible Australian consumer.
"Clearly we are seeing economic conditions improve but there's still a little bit of fragility out there," chief executive Gail Kelly said in a telephone briefing.
The market, though, shrugged off her comments about improving economic conditions and instead seized on her remarks on the bad-debt cycle, which she said had yet to peak.
Westpac and other local banks have so far weathered the global financial crisis better than many offshore rivals, using their relative strength to raise about $11 billion in equity since November and to expand both at home and abroad.
But profitability and dividends have still been hurt, leaving investors hungry for signs that a jump in mostly commercial bad debts will soon peter out, enabling Australian banks to resume their normal service of fat profits and rising dividends.
Reaction Not All Bad
Some bank analysts said Westpac's update was broadly in line with the picture painted by Commonwealth Bank last week when it reported annual profits ahead of expectations, though the latter's results made a better impression on the market.
Commonwealth Bank's annual net interest margin grew, while Westpac said its was stable in the third quarter.
"It is pretty much what we would have expected," said Tom Quarmby, banking analyst at Macquarie, noting Westpac's Tier 1 capital-adequacy ratio remained strong at 8.17 per cent.
"I remain very comfortable about Westpac's ability to operate without the need for additional equity," Mr Quarmby added.
Westpac noted that weakness in business loans had been offset by the healthy Australian mortgage market.
"The consumer sector remains remarkably resilient," Ms Kelly said, adding that group revenue remained strong at around levels recorded in the first two quarters.
Australian consumers have largely continued to repay loans and borrow, thanks to record-low interest rates, massive government stimulus spending and a robust labour market.
Westpac said the bank was taking a conservative approach to credit quality and that growth in stressed assets would subside.
"We believe that the rate of increase in stressed exposures is unlikely to be repeated in coming months," Ms Kelly said.
Westpac shares were down 70 cents to $22.61 in afternoon trade. The shares have surged 33 per cent so far this year, outperforming the bank sector index.
Most of the growth in Westpac's bad-debt charges stemmed from worsening credit in the commercial sector and bad debts in New Zealand in particular, especially in the property sector.
Impaired assets as a whole rose by 24 per cent, again largely due to Westpac's New Zealand business.
Westpac Banking Corporation Ltd, Australia's second-biggest lender, reported a jump in bad loans on Friday, leading bank stocks lower as investors turned a deaf ear to its overall message that profits were holding up well.
Westpac's third-quarter trading update sent its shares sliding four per cent and triggered sharp falls in major rivals on concern that rising charges for bad loans could crimp future profits and dividends of banks.
Shares in all four major banks dropped heavily following the news, with NAB slumping 4.46 per cent to $25.68, ANZ Banking Group losing 3.77 per cent to $18.88 and Commonwealth Bank of Australia sliding 2.13 per cent to $44.02 at 1407 AEST.
Westpac shares were 4.03 per cent lower, at $22.37, having fallen as low as $22.30 against a 2.18 per cent fall in the benchmark index.
"[Westpac's] bad-debt provisions have risen quite a lot and the market is taking heed of that," said Martin Angel, dealer at Patersons Securities Ltd.
Westpac said bad-debt charges rose six per cent between the second and third quarters to $865 million. Overall, stressed assets rose to 2.8 per cent of its loan book, up from 2.1 per cent just three months earlier.
But the bank said its cash profits had held steady at about $1.1 billion for the three months ended June 30 and that total lending had actually grown by 1.3 per cent from the previous quarter, thanks largely to the irrepressible Australian consumer.
"Clearly we are seeing economic conditions improve but there's still a little bit of fragility out there," chief executive Gail Kelly said in a telephone briefing.
The market, though, shrugged off her comments about improving economic conditions and instead seized on her remarks on the bad-debt cycle, which she said had yet to peak.
Westpac and other local banks have so far weathered the global financial crisis better than many offshore rivals, using their relative strength to raise about $11 billion in equity since November and to expand both at home and abroad.
But profitability and dividends have still been hurt, leaving investors hungry for signs that a jump in mostly commercial bad debts will soon peter out, enabling Australian banks to resume their normal service of fat profits and rising dividends.
Reaction Not All Bad
Some bank analysts said Westpac's update was broadly in line with the picture painted by Commonwealth Bank last week when it reported annual profits ahead of expectations, though the latter's results made a better impression on the market.
Commonwealth Bank's annual net interest margin grew, while Westpac said its was stable in the third quarter.
"It is pretty much what we would have expected," said Tom Quarmby, banking analyst at Macquarie, noting Westpac's Tier 1 capital-adequacy ratio remained strong at 8.17 per cent.
"I remain very comfortable about Westpac's ability to operate without the need for additional equity," Mr Quarmby added.
Westpac noted that weakness in business loans had been offset by the healthy Australian mortgage market.
"The consumer sector remains remarkably resilient," Ms Kelly said, adding that group revenue remained strong at around levels recorded in the first two quarters.
Australian consumers have largely continued to repay loans and borrow, thanks to record-low interest rates, massive government stimulus spending and a robust labour market.
Westpac said the bank was taking a conservative approach to credit quality and that growth in stressed assets would subside.
"We believe that the rate of increase in stressed exposures is unlikely to be repeated in coming months," Ms Kelly said.
Westpac shares were down 70 cents to $22.61 in afternoon trade. The shares have surged 33 per cent so far this year, outperforming the bank sector index.
Most of the growth in Westpac's bad-debt charges stemmed from worsening credit in the commercial sector and bad debts in New Zealand in particular, especially in the property sector.
Impaired assets as a whole rose by 24 per cent, again largely due to Westpac's New Zealand business.
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