The official first-half results from National Australia Bank and ANZ have confirmed that the banks have been holding on to their margins at the expense of business borrowers.
NAB and ANZ both posted a sharp drop in cash earnings – down 9.4% to $2 billion in the case of NAB and down 43% to $954 million for ANZ.
But NAB and ANZ managed to increase their net interest margin – the difference between interest paid by borrowers and interest paid on deposits – by 19 basis points and 22 basis points respectively.
NAB’s executive director of finance, Mark Joiner, told The Australian Financial Review that the increase had come “almost exclusively” from re-pricing (that’s bank code for increasing) rates on its business portfolio.
The reason for the banks’ decision to increase rates on loans to business customers has also been highlighted in their results announcements – they are bracing for a big leap in bad debts as customers struggle during the recession.
NAB revealed bad debt charges increased from $700 million to $1.8 billion, while ANZ’s bad debt charges doubled to $1.4 billion.
Ominously for small and medium business owners, NAB chief executive Cameron Clyne said the bad debts cycle is about to enter a new phase.
The first phase – which involves high-profile collapses of heavily-indebted corporations, such as ABC Learning, MFS and Allco – is almost over.
The second phase, which involves small and medium businesses defaulting on their loans, is about to start.
The third phase, involving consumers defaulting on loans, will occur later, as unemployment rises.
ANZ chief Mike Smith was more blunt this morning. “We will see a hit to the commercial sector and SMEs for the rest of the calendar year 2009.”
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James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
