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ANZ, Kiwibank figures reinforce that big banks past due assets remain stubbornly high

ANZ, Kiwibank figures reinforce that big banks past due assets remain stubbornly high

By Gareth Vaughan

Both ANZ New Zealand and state owned Kiwibank, who both released their latest General Disclosure Statements on Friday, recorded increases in 90-day past due assets, reinforcing a trend of stubbornly high past due assets, that's being watched closely by credit rating agency Standard & Poor's.

ANZ, the country's biggest bank, said 90-day past due assets rose NZ$29 million, or by 9%, to NZ$342 million in the three months to December 31, 2010. Kiwibank's rose NZ$11.7 million, or nearly 51%, to NZ$34.7 million over the same timeframe.

Peter Sikora, Standard & Poor's analytical manager for financial institutions in the Pacific, told in an interview that past due loans were always a key area of focus for the credit rater.

"We look at them both with respect to ultimate losses but also the impact they’re having on liquidity," Sikora said. "(Because) when loans are past due they’re not paying (interest)."

"Past due loans put a squeeze on liquidity and, where the loans have matured, principal balances are not returning so that puts pressure on new credit and can be a bit circular in terms of its impact where it is prolonged, embedded arrears."

Westpac's 90-day past due assets fell by NZ$39 million, or 10%, to NZ$358 million in the three months to December. However, Westpac's total past due assets, including those overdue for less than 90 days, rose to NZ$2.2 billion from NZ$2.1 billion at September 30.

BNZ's 90 day past due assets increased by NZ$14 million, or 7%, to NZ$210 million with total impaired assets and assets under administration up to NZ$1.03 billion from NZ$997 million. ASB is yet to release its December quarter General Disclosure Statement.

PricewaterhouseCoopers recent bi-annual Banking Perspectives report noted the big five banks still have significantly more past due loans on their books than they did before the Global Financial Crisis. Covering the financial results of ANZ, ASB, BNZ, Kiwibank and Westpac for the second-half of their 2010 financial years, PwC noted that although the five banks' combined 90-day past due assets were down slightly from the NZ$1.4 billion high in the first-half of 2009, they were still at NZ$1.3 billion in the second half of 2010. This compares to pre-GFC norms of between NZ$300 million and NZ$400 million.

Sikora said illiquidity in the property market was a significant contributor to the high past due asset levels. 

"It’s very difficult to exit some of these assets because of limitations around demand and importantly, limitations around finance. It’s difficult even for some potential buyers to secure finance (at the moment)," Sikora said.

The "work out" of the past due loans would take some time, longer than in previous economic downturns.

"(But) at this stage we don’t think that’s going to be something that in itself will result in negative rating momentum for the New Zealand banks," Sikora said.

Kiwibank said total gross impaired assets as of December 31 stood at NZ$63.9 million, versus NZ$52 million at September 30, with interest revenue forgone on impaired assets worth NZ$1.8 million. Kiwibank has total assets of NZ$12.9 billion.

ANZ said individually impaired assets rose slightly to NZ$2.04 billion from NZ$2.03 billion at September 30 with corporate exposures comprising NZ$1.4 billion of this. The bank's total provision for credit impairment fell slightly to NZ$1.35 billion from NZ$1.4 billion. ANZ has total assets of NZ$124.5 billion.

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surprise, surprise past due assets remain stubbornly high.

Maybe this is the wake up call banks need. A little bird told me today that the NZRB has told the Banks to get their rural portfolios sorted out. It is time for a more considered approach given the prices available for all the commodities across the rural sector.This is what happens when OD's are reduced and farmers can't reinvest in infrastructure. Some of the banks have loans falling due and will not refinance debt for another fixed term, despite the fact that these farmers are still paying mortgage payments when technically they have no mortgage and are in default and the farmers are still paying all running expenses.