BOSI a drain on Lloyds

One measure of the severity of the crash in commercial real estate in Australia and the consequences for the entire banking industry can be gleaned from the awful state of the lending book of Lloyds TSB in Australia.

Impaired loans at Lloyds soared to 12.5 per cent of all loans as of June 2009, and more than double the percentage of problem loans recorded at December 2008.

The lending business of Lloyds is the leftovers of HBOS Australia after BankWest was sold to CBA at the end of 2008. Lloyds rescued HBOS in Britain with help from (and effectively under orders from) Britain's government at the height of the financial crisis in September last year.

HBOS was an idiosyncratic lender in the commercial real estate sector in Australia; operating, it transpires, at the end of the risk spectrum preferred by certain finance companies and mortgage funds rather than most banks.

On the other hand HBOS, through Bank of Scotland International (and to some extent BankWest) ranked alongside major banks on plenty of troubled development projects, so the strife across the Lloyds' portfolio is a reminder that other lenders must have comparable problems.

Lloyds said impaired loans in Australia were £1.61 billion at June 2009, up from £685 million at December 2008.

Impairment provisions were £675 million at June 2009, up from £256 million at December 2008.

In a short commentary published as part of the half year financial statements Lloyds said impairment losses in Australia of £408 million represented 3.1 per cent of average advances.

Lloyds cited the "downturn in a number of sectors including commercial property, manufacturing, finance and transport".

The bank said it was writing "limited new business" in Australia "on a selective basis, primarily replacing roll-off on motor and asset finance portfolios."