Developer loans turning sour for Suncorp

Loans to property developers are an increasing thorn in the side of Suncorp's business lending.

The bank classed $142 million of loans - or 2.6 per cent of a property development book of $5.5 billion - as impaired. This is up from 2.3 per cent six months ago and 1.4 per cent 12 months ago.

Loans to property developers represent almost 11 per cent of Suncorp's lending and this percentage is rising fast. Property loans were less than nine per cent of group lending a year ago.

Overall Suncorp's impaired assets were around 0.4 per cent. Gross non-performing loans as a percentage of gross loans hit a low of 37 basis points in December 2004 and have increased in every reporting period since. At the end of December they were 70 basis points.

Asset quality provided another strain on the banking business as did bad debt expense, which rose 220 per cent to $16 million.

Even so, and despite the elevated funding costs for the bank, Suncorp's plans for lending growth mean the firm slightly upgraded its profit outlook for the banking division. Suncorp now expects growth in profit from the bank, before tax and before bad debt expenses, to increase by between 10 per cent and 12 per cent next year.