CBA warns, but confident ASB provisions lower than most

Commonwealth Bank of Australia has warned of significantly higher provisions for bad debts because of the collapses of ABC Learning, Allco and Lehman Brothers, but says it is confident the credit quality in its ASB operation is better than the average of its peers in the New Zealand market. "The outlook for the New Zealand banking market remains stable despite the challenging economic environment evidenced by two consecutive quarters of negative GDP, rising inflation and unemployment and falling house prices," CBA said in its first quarter update here. "ASB Bank continues to attract strong funding into its diverse range of savings and investment products, assisted by the flight to quality following the collapse of a number of finance companies in New Zealand," CBA said. "ASB's lending book is still growing - with business and rural lending showing particular strength. Lending criteria has been reviewed to reflect the economic environment so borrowers are better placed to meet their loan payments in a market where lending costs are expected to remain high for some time," it said. "Loan provisions have also increased, albeit off a very low base, reflecting an increase in arrears over 90 days. However, with only 15 per cent of ASB's loans being over 80 per cent Loan to Valuation (and only 4 per cent over 90 per cent Loan to Valuation), ASB has a quality lending portfolio. Provisions are expected to remain well below the industry average. " CBA said ASB Group Investments' share of KiwiSaver members had exceeded expectations. More broadly, CBA CEO Ralph Norris said market conditions remained challenging, with problems in global credit markets now flowing into the wider economy. Norris said CBA's Tier 1 capital ratio of 7.5 per cent was largely unchanged from June 30 and CBA's 2009 term funding programme was 40% complete. "At this stage we are not seeing any systemic credit issues in our portfolio. However, our half year results will be adversely impacted by additional provisions driven primarily by a small number of single name exposures," Norris said. Australian newspapers estimated combined provisions of up to an extra A$1 billion because of ABC Learning, Allco and Lehman Bros, with further losses possible from Centro. * This article was first published yesterday in our daily subscription newsletter for the banking and finance industries. The email costs NZ$365 per annum and carries exclusive news and analysis for New Zealand banking and finance industry executives, regulators and investors. Sign up for a free trial here.