BankWest's loan delinquencies haunt CBA

Half of all new loan impairments at the Commonwealth Bank in the March quarter were the result of BankWest commercial property loan delinquencies.

CBA provided a March 2010 quarter update yesterday, in which it reported that impaired assets increased from $4.8 billion at the end of the December half to $5.3 billion at the end of March.

The rate of increase in impairments peaked in June last year but the trend is still rising, as it is for the other big banks. In all cases commercial property is the cause of the problem and asset values in those markets have yet to turn around.

CBA chief financial officer David Craig said asset values of development land and developed commercial properties in the portfolio continued to fall.

At Westpac's interim results briefing last week chief financial officer Phil Coffey said: "Commercial property has been the sector for us that has been most under stress, and the majority of the downgrades over the half have been in this sector."

Westpac Australian business banking, which includes the Westpac and St George business banking divisions, was the biggest contributor to the bank's increase in impairments and stressed exposures in the March half.

Stressed exposures were up nine basis points to 3.18 per cent. By far the biggest contributor to this increase was the property and business services loan portfolio.

Coffey said: "We have materially reduced our exposure to property over the last 12 months. As the de-gearing of this sector has unfolded and projects completed, we've used the opportunity to take three percentage points off our total commercial property exposure, which now represents 9.6 per cent of total loans."

NAB also reported that it has reduced its exposure to commercial property. The bank had a commercial property loan portfolio of $70.6 billion at March 31 (including Australia, the UK and New Zealand). This contracted by $3.9 billion over the half.

NAB's Australian business banking division's commercial property loan portfolio is $48.6 billion, which represents 15.2 per cent of Australian gross loans and acceptances. That proportion has come down from 15.8 per cent last September.

The proportion of impaired loans in NAB's Australian commercial property portfolio has increased from 0.05 per cent in September 2008 to 1.79 per cent at the end of the latest half.

CBA reported unaudited cash earnings of $1.5 billion for the March quarter. The result was after bad debt charges of $500 million.

Chief executive Ralph Norris said that home loan growth had moderated and the bank was now growing mortgages "a little above system", while there were the beginnings of a re-emergence of demand for business credit.

He said the CBA's SME lending was growing above system.

The bank's deposit growth is strong and the share of bank funding from retail deposits increased from 57 to 59 per cent during the quarter.

CBA is claiming the highest number of products per customer, at 2.54.

Craig said the fee reductions in the retail business had cost $100 million in the December half and would cost between $150 and $160 million in the second half.