Bendigo and Adelaide Bank yesterday clarified the extent of its loans to investors in tax-driven investment in the timber plantations of Great Southern Limited, which fell into administration two weeks ago.
The bank said it had about 8200 borrowers and average loans of $75,000, taking the bank's loan to $615 million.
The Sydney Morning Herald reported that Bendigo might have increased its exposure to this type of loan in the weeks before the firm's failure.
According to the newspaper, a couple of weeks before the end Great Southern undertook a partial sale of its loan book, to what is believed to be Bendigo Bank, for 38 cents in the dollar. It isn't clear what the aggregate face value of the loans was.
In its statement to the ASX yesterday Bendigo noted that the loans are full recourse.
And while the loans are to borrowers with decent incomes (and who were mostly motivated to reduce high marginal rates of income tax) the bank may find its overdue loan levels blow out over the near term.
None appear to have been treated as overdue as at December 2008, the date of Bendigo's last quarterly disclosure on credit risk. Bendigo reported $63 million in overdue loans of 90 days or more classified as "other retail" at the time, as well as $189 million in overdue home loans.
However, if the comparable extent of delinquencies at Timbercorp is any guide the median loan may be a lot higher than the mean. According to another article in the Sydney Morning Herald today, administrators of Timbercorp (with which Bendigo was not associated) have found it is the largest borrowers that have declined to make loan repayments in the period since that firm first hit strife.
Another factor for Bendigo may be the fact that many of the loans were approved by Great Southern under a business relationship established by Adelaide Bank (which folded into Bendigo in late 2007).
Bendigo has disclosed progressively less and less about the make-up of what it now terms "partner advised" banking in half-yearly financial reports, so it's not clear how significant the Great Southern sourced loans are to this segment of its business, but it's fair to say the Great Southern relationship was the most significant of those established by Adelaide Bank's wholesale banking business.