Bad debts a drag on Suncorp

Suncorp Metway yesterday raised its guidance for bad debt charges for the financial year to June 2009 , as bad debts in the third quarter increased almost 26 per cent to $1.2 billion.

Suncorp also said it was considering setting up a new non-operating holding company structure to more clearly delineate the operating businesses and allocation of capital within the group.

Suncorp said impaired assets increased to $1.24 billion at March 2009 compared with $986 million at December 2008.

Acting chief executive Chris Skilton said the Australian banking sector had continued to be affected by the deteriorating economy and declining property values.

"While we believe our full-year bad debts will be contained at the top end of previous guidance, given the downside risk associated with ongoing economic uncertainty, we think it is prudent to adjust our full-year bad debt charge guidance to the range of 125 to 145 basis points of total loans," Skilton said.

At the bank's first-half results in February, Suncorp said it expected bad debts for the full year to represent a total 100 to 130 basis points of total loans.

The forecast translates into a bad debt charge for the year to June of about $715 million.

Suncorp said its tier one capital ratio rose to 11.4 per cent in the quarter, however, and its capital adequacy ratio increased to 13.2 per cent.

As part of the final phase of incorporating Promina into its structure following its acquisition of the insurer, Suncorp said it was looking into creating an NOHC, though a key factor for proceeding would be to maintain the credit ratings of the group. It said preliminary analysis suggested this was achievable.