Australian Banks Have Not Yet Reached Peak Credit Losses

As I’ve been saying repeatedly, Australian banks have not yet reached peak credit losses in the current cycle and all will be forced to raise new equity and/or cut dividends. Just 2 weeks after ANZ raised in excess of $2.2 billion, National Australia Bank Ltd (NABZY.PK) announced today that they will raise a total of AUD$2.75 billion CEO Cameron Clyne had this to say:

”We are not seeking to build a war chest nor are we contemplating anything transformational,” Mr Clyne said.

”The inorganic opportunities that are emerging are what I would characterise as strategic bolt-ons, unlikely to be any larger than the deal size of Aviva,” he said.

Yes Mr. Clyne, you can’t do anything transformational with that kind of dosh because at least half of it will go towards impending credit losses. Also released today, NAB’s 3Q09 report which showed NAB made cash earnings of $900 million for the quarter, not a bad effort considering the current environment. However, as anticipated, provisions for loan losses continue to ratchet up, exceeding $1 billion for the quarter as shown below. Extrapolating that loss rate into 4Q09 would put provisions for the 2H09 at over $2 billion.

90 days past due plus Gross impaired assets to gross loans and acceptances rose to 1.77% in the June quarter up from 1.38% in the half year to the end of March.

The good news for the major Australian banks is that the capital markets are open for them. The good news for investors is that there is no need to rush in and buy Australian banks as further dilutionary capital raisings and rising bad debts are far from over.