Westpac, CBA ratings to hold firm

As investors started to recover from the double shock of profit warnings from National Australia Bank and ANZ over their huge sour loan exposures, the key ratings agency Standard & Poor's yesterday flagged the prospect that the other two majors will also boost their charges.

But in a sign it does not expect any large immediate increase in the amounts to be set aside, S&P said the increases will be within the range of its forecasts.

The agency's statement came after it and rival organisation Fitch both threw their support behind ANZ's decision to raise its provisions for the 2008 financial year by a further $1.2 billion, taking the total charge to more than $2.1 billion.

This will cut the bank's full-year cash profit by as much as $800 million to $3.1 billion.

Nonetheless, the verdict of both agencies was that the higher provisions were prudent, in light of the increased threat of corporate and consumer loan defaults. As a result, they maintained ANZ's AA credit rating and suggested the bank had largely contained its bad debt problems.

But NAB's AA rating remains on negative credit watch by S&P because of concerns that it may have to increase its provisions in the coming year after the $830 million write-down of last Friday. This will cut its 2008 profits by $600 million.

The indicators for Commonwealth and Westpac are that both banks will adopt tougher stances on sour loans, though not to the same extent as their rivals.

This is despite their respective exposures to debt-stricken corporates such as Allco Finance group and Centro Properties, whose future remains on a knife-edge despite efforts by its new management team to repay billions of dollars of borrowings via asset sales.

Banking analysts at UBS have estimated Commonwealth will push its provisioning close to $1 billion when it announces its full year 2008 profits of about $4.6 billion next month.

Westpac is expected by UBS to have a bad debt charge of just under $900 million, although that figure may change as it still has two months of its current financial year to run, against the back of a worsening economic outlook.

The absence of any further bad news from the big banks spurred a rally in bank stock prices yesterday after the severe falls seen over the past three trading days.

The average gain was 3 per cent, with Commonwealth up $1.06 to $40.39, Westpac 73c to $20.94, and ANZ 57c to $16.10.

NAB, which had fallen furthest, rose 68c to $25.46 as it hosed down speculation that chief executive John Stewart would depart because of the write-downs.