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High bad debt levels may slow recovery

High bad debt levels may slow recovery
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First Published: Fri, Oct 30 2009. 12 49 AM IST
Updated: Fri, Oct 30 2009. 12 49 AM IST
Amsterdam/Sydney: Bad debt levels will stay high in Asia and could rise further in Europe next year while signs of a clear global recovery are elusive, leading banks warned, though early evidence of a return to US growth injected some optimism. Bank shares in both regions initially fell sharply on Thursday as debt provision concerns outweighed a generally positive turn in earnings.
In Europe, the stocks turned positive by midday, though, putting an end to three days of steep losses driven by unease over European Union restructuring plans for the sector.
“This isn’t over yet,” said Mike Smith, chief executive of Australia and New Zealand Banking Group (ANZ). “Often it’s the aftershocks that do the most damage. We still all need the US economy to kick-start.”
Smith said ahead of data showing the world’s biggest economy grew in the third quarter for the first time in a year as consumer spending and investment in home-building rebounded, unofficially ending the worst recession in 70 years.
Deutsche Bank AG reported a profit in all of its divisions, but provisions for credit losses more than doubled year-on-year to €544 million (Rs3,808 crore). Germany’s biggest bank said its provisions, which analysts had expected to be higher, related mainly to exposure in Poland and Spain, and forecast they would peak in the US and Europe within six months.
Standard Chartered Plc, based in the UK but focused on Asia, said it was benefiting from broad growth. The economic outlook was still fragile, with markets recovering faster in Asia, Africa and West Asia than the West.
ANZ, the smallest of Australia’s four big banks, said cash profit surged 79% to Australian $2.43 billion (Rs10,450 crore) for the half year ended September, beating forecasts.
Still, bad debt charges in the second half surged 29% from a year earlier to Australian $1.63 billion. Chief executive Smith warned against complacency, saying although there were positive signs on the economic front in Asia and Australia, there were no real signs of a recovery in the US.
“The management teams are just being circumspect. The clouds just don’t blow away,” said Marcus Truman, a portfolio manager at Integrity Investment Management in Sydney.
China’s largest bank, ICBC, and its No. 4 lender Bank of China reported healthy profit increases of around 20%, as both benefited from a surge in lending in the first half of the year under Beijing’s economic stimulus plan. Both said lending growth slowed sharply in the third quarter as the regulator leaned on banks to watch out for problem loans.
KB Financial, parent company of South Korea’s largest bank, Kookmin, was more bullish, saying bad debt provisions would fall next year as fewer loans would go sour. The group reported a 69% drop in quarterly profit to 173.7 billion won (Rs688.75 crore), much worse than expected, as it was hit by bad debt charges and a slow margin recovery.
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Kim Yeon-hee in Seoul, Doug Young in Hong Kong, Philip Blenkinsop in Brussels and Edward Taylor and Alexander Huebner in Frankfurt contributed to this story.
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First Published: Fri, Oct 30 2009. 12 49 AM IST