Foreign banks back in the red

Foreign banks operating as branches in Australia traded deep in the red in the December 2009 quarter, data published by APRA show.

After three quarters of relatively moderate charges for bad and doubtful debts, and thus a return to operating profits, foreign banks ramped up the bad debt charge in the final quarter of last year.

The 34 foreign banks operating as branches incurred an aggregate charge for bad debts of $717 million in the December 2009 quarter.and compared with a charge averaging $160 million (across all the banks) in each of the two prior quarters.

In keeping with the rest of the banking sector foreign bank branches incurred higher charges for bad debts in 2009, at $1.4 billion, than in 2008 (when the expense was $1.3 billion).

As a result foreign banks reported a combined loss after tax of $427 million in the December 2009 quarter, the first loss during any quarter for the sector during the year.

A surge in fee income and commission income over the year, however, supported earnings for foreign bank branches.

Fee and commission income, "other fee based income" and "other" income increased by more than $1 billion for foreign banks over 2009. Net interest income increased $600 million.

Thus the foreign banks reported aggregate operating income over 2009 of $5.2 billion, or 46 per cent higher than in 2008.