Are resources the canary in the banking mine?

Plenty has been said about the increased bad and doubtful debt (BDD) provisioning from ANZ on the back of its exposure to Peabody and Arrium.

ANZ
Source: Bloomberg

Westpac has also laid the groundwork for increasing its BDD provision on consumer exposure. So how exposed are the Big Four?

The ‘big’ exposures:

  • Resource and energy represent approximately 1.5% of total bank exposures.
  • Over the past five and half years, US$62 billion has been lent out in syndicated loans. This is where the problem really lies and is approximately 22% of the total syndicate loans the Big Four participated in over this period.
  • ANZ’s exposure to resource syndicate loans is $27 billion, which is 24% of its syndicate exposure. WBC has the lowest with $9 billion.
  • The ‘risk exposed’ recourse syndicate debt is about 25%. This is based on resource firms that have a net debt-to-equity that would be described as ‘high’ and where free-cash-flow is either just or not covering interest repayments. Again, ANZ has the highest level of exposure to this group.
  • BDD at the end of financial year 2015 was one of the lowest levels in the post-GFC era and has helped drive share prices. However, there were signs that BDD charges were beginning to turn at the end of FY15 as the iron ore price and crude prices begun to crash.
  • NAB, Westpac and ANZ are due to report half year FY16 numbers at the end of April/beginning of May. Expectations would be for NAB to join WBC and ANZ in ‘confessing’, its provisioning for BDD will have to increase based on current information from resource firms.
  • The unknown is the exposure to service related syndicate loan debt. WBC’s admittance it’s provisioning in its ‘consumer and business related lending’ sector is set to increase gives rise to the prospect of further one-off write offs and BDD increases across the Big Four group.

The clear examples here are the syndicate loans provided to Dick Smith and Slater and Gordon. The impacts are not yet clear due to the ongoing audits, however NAB has the biggest exposures to these names. The confessions are growing by the day.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

Find articles by analysts

Een artikel zoeken

Form has failed to submit. Please contact IG directly.

  • Ik wens per e-mail informatie van IG Group bedrijven te ontvangen over handelsideeën en IG's producten en diensten.

Voor meer informatie over hoe wij uw gegevens mogelijk kunnen gebruiken, bekijkt u ons Privacy- en toegangsbeleid en onze privacy website.

CFD’s zijn complexe instrumenten en brengen vanwege het hefboomeffect een hoog risico mee van snel oplopende verliezen. 79% van de retailbeleggers lijdt verlies op de handel in CFD’s met deze aanbieder.
Het is belangrijk dat u goed begrijpt hoe CFD's werken en dat u nagaat of u zich het hoge risico op verlies kunt permitteren.
CFD’s zijn complexe instrumenten en brengen vanwege het hefboomeffect een hoog risico mee van snel oplopende verliezen.