Kelly defends St George bad debt performance
Westpac chief executive Gail Kelly yesterday rejected suggestions that St George Bank had made a disproportionate contribution to the bad and doubtful debt charge in the group's results for the latest half.
Westpac completed its acquisition of St George last November and in yesterday's financial report for the March half it presented pro forma accounts for comparison purposes, as if it had owned St George since October 2007.
The group reported a net profit of $2.17 billion for the half, down 1.2 per cent on the previous corresponding period, and cash earnings of $2.3 billion, down six per cent. Earnings per share fell 16 per cent.
The group's impairment expense jumped from $541 million in March 2008 and $664 million at September 30 to $1.6 billion for the latest half.
The big items included $372 million of provisions on its corporate exposures - ABC Learning, Allco Finance Group and Babcock & Brown.
The bank charged $156 million against bad loans in its margin loan portfolio. Kelly said she was particularly disappointed with the margin lending outcome.
She said: "We did portfolio reviews but we did not mitigate the downside risk as well as we would have liked. We have taken steps to strengthen the management of this business."
The bad debt experience had also moved from the large to the broader commercial market, an effect of the economic downturn.
St George contributed $110 million to impairment charges, predominantly related to commercial property lending, including residential development.
But Westpac chief financial officer Phil Coffey said the St George bad debt experience was no worse than Westpac's "in the same segment".
Kelly said nine out of the top 10 St George impaired loans were residential property development in areas like south east Queensland. She said these assets had good security.
Kelly said one factor in the latest results was the impact of the change from St George's approach to assessing credit to Westpac's more cautious approach.
The group's stressed exposures, which include impaired assets, loan 90 days past due, watchlist and substandard loans, are now higher than they have been in the past decade.
During the 2001 economic slowdown stressed exposures as a percentage of total committed exposures hit 1.5 per cent. They fell below one per cent from 2004 to 2007. In the latest result they are over two per cent.