NZ's TSB hit by coal slump

TSB Bank has written off all of its NZ$53.9 million in loans to state-owned coal miner Solid Energy after a slump in coal export prices, carving 74 per cent off the New Zealand regional lender's nine-month net profit.

Solid Energy owes another NZ$250 million to Commonwealth Bank, National Australia Bank's BNZ, ANZ, Westpac and Bank of Tokyo Mitsubishi. These loans may also have to be written down, or written off completely.

Solid Energy's board announced on Friday it had deferred finalising its accounts because of uncertainty about its outlook. Its chairwoman was replaced earlier in the week and the exporter of coking coal has had to be bailed out twice in the last two years because of a slump in prices linked to slowing Chinese demand.

TSB reported a net profit of NZ$9.5 million for the nine months to December in its General Disclosure Statement, down from NZ$49.3 million the previous year.

The write-down on the Solid Energy loan is the second by TSB after a provision of NZ$13.7 million in December 2013. The Government has already bailed out the miner twice, including a contribution of up to NZ$155 million in October 2013 and an agreement in September 2014 to cover Solid Energy's obligations to remediate old mines to the value of NZ$103 million.

"Local and international market conditions for coal trading have deteriorated substantially and are not forecast to recover in the near term," TSB said in its accounts.

"The Bank's assessment is that the bonds are unlikely to be repaid and as such the Bank has taken the decision to fully impair the bonds in the December 2014 accounts," it said.

"Potential recoveries, if any, appear unlikely and not determinable based
on information available to the Bank at the time these financial statements were authorised for issue."

Solid Energy had over NZ$320 million of debt at the middle of 2014. The other banks exposed to the debt include ANZ, BNZ, Westpac, CBA and the Bank of Tokyo-Mitsubishi.

Solid Energy Acting Chairman Andy Coupe said, after a board meeting on Friday, that the company would defer presenting its accounts to the Government until it was confident the accounts reflected a true and fair picture of the company's position.

Solid Energy now thought coal prices would remain lower for longer than predicted, Coupe said.
 
"We can see an issue coming. It is not about current performance or any immediate difficulty in meeting our commitments.  It is about the impact on our balance sheet of future pricing for coal and our consequent diminishing ability to repay or refinance debt when it falls due from September 2016. We are acting early," Coupe said in a statement.

Before the Solid Energy provision, TSB's profit before impairments and tax rose 12 per cent to NZ$67.7 million. There was a 14 per cent increase in net interest income to NZ$93.6 million and a ten per cent rise in operating expenses to NZ$40.9 million.

Total lending grew 4.5 per cent to NZ$3.2 billion, including a five per cent rise in residential mortgages to NZ$2.69 billion, which was just above banking system growth of 4.7 per cent.