ANZ yesterday reported a hefty increase in provisions that will be the defining feature of its profit performance in the first half of the 2008 financial year.Most notable among those provisions is $200 million resulting from a derivative position with a US monoline insurer.  The insurer had been downgraded to non-investment grade and accounting rules required that the exposure be marked to market.ANZ chief executive Mike Smith said the underlying exposure in the transactions was to US and European "Fortune 500" corporates. He said it was likely that a substantial portion of the exposure would be written back.The bank made a $90 million charge against its collective provision in response to the downgrading of a commercial property client, assumed to be Centro. Smith said: "At this stage it has not been necessary to make an individual provision."And the failure of a client in the resources industry resulted in a $51 million provision. This bad debt appears to have first arisen a couple of years ago and the write-off is not a facet of the current stress in financial markets.Smith said consumer credit quality was sound. Credit card arrears were five basis points below levels 12 months ago.He said customers were making a higher than average level of repayments on mortgages. The level of arrears 90 days past due was 24 basis points.To offset the bad news Smith stressed that underlying income growth was rising, and perhaps more strongly than those modelling ANZ's fortunes in the market had expected.