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Bank profits hit again by bad debts -

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Reporter: Peter Ryan

BRENDAN TREMBATH: Two of Australia's biggest banks have underscored the depth of the economic
crisis, revealing fresh exposures to bad and doubtful debts.

Both the ANZ and National Australia Bank say deteriorating economic conditions are continuing to
put pressure on asset values and ultimately profits.

The ANZ has flagged a 15 per cent fall in full year profit, while the NAB says it could be taking a
tougher stance on dividend payments and the delivery of interest rate cuts in full.

I'm joined in the studio now by our business editor Peter Ryan.

Well Peter first to the National Australia Bank and concerns about more bad and doubtful debts?

PETER RYAN: Yes Brendon. Well firstly the NAB says it's cash earnings for the first quarter will be
around $1.1-billion and that's in line with expectations in a tough market.

Interestingly, the full year profit is expected to come in at $4.4-billion and that's still ahead
of last year's result of $3.9-billion.

But the bad news here is that the NAB's bill for bad and doubtful debts will reach $824-million in
the first quarter and that exceeds the $726-million the bank flagged in the first half of last year
and this particular charge has been pushed up by a small number of what the NAB calls high profile
clients in Australia and half of that relates to three specific clients whose debts have turned

Chief executive Cameron Clyne in one of his first outings as the NAB's chief executive says asset
qualities are deteriorating, indicating more shocks along the way.

CAMERON CLYNE: The economic outlook is clearly not getting any better and as we said, we face a
challenging market environment. We feel this performance is solid in light of that.

The future is very uncertain. It is neither sensible or realistic to try and predict the future and
we are not intending to do that but as I said, we are hoping that this disclosure does represent a
step forwards in our commitment to be more transparent during difficult market times.

BRENDAN TREMBATH: The National Australia Bank chief executive Cameron Clyne.

Well, Peter Ryan, given the economic outlook and the tough trading conditions, what did Mr Clyne
have to say about the all important matter of interest rates?

PETER RYAN: Well, like all banks, the NAB has been under a lot of pressure from the Federal
Government to deliver interest rate cuts in full and the background to this is that last year the
big four banks, in fact all the banks, hiked interest rates independently at the peak of the global
financial crisis as the cost of sourcing money spiralled.

Since then, the rate that banks use for lending to each other - or the US dollar Libor rate - has
fallen significantly.

But Cameron Clyne has his eye on long term costs as well and indicated there could be bad news for
customers in the months ahead, in the terms of how much of a rate cut they will be prepared to pass
on and this comes at a time when the Federal Government is very busy encouraging all sectors of the
economy to pump money into an ailing economy.

CAMERON CLYNE: We'll pass on this week's 100 basis point cut by the RBA on a range of products.
Margins will continue to be impacted by high wholesale funding costs and strong competition for

Given the impact of those funding costs, it is relatively unlikely we will be able to pass on in
full future RBA cuts.

BRENDAN TREMBATH: NAB chief executive Cameron Clyne again.

We know a lot of companies are under pressure about their dividend payments. But the NAB has been
among the first to flag possible dividend cuts?

PETER RYAN: Well that's right. Cameron Clyne flagged the dividend will be maintained for now but he
says the full dividend might not be passed on in the future, and using some quite direct language
he said that dividends were of value to the shareholders but not of much value to the bank in the
tough economic times.

He says the future hangs on the state of the economy, and the NAB board will reconsider its
dividend policy later in the year but this is of obvious importance to investors who rely on the
dividend to make their living, particularly those retirees who have been buffeted by falling share
market values.

BRENDAN TREMBATH: Certainly is, the major banks a major part of their portfolios usually and ANZ
Bank would probably be one of those. It has been prompted to update its profit outlook as well?

PETER RYAN: That is right. It has been a busy morning for banks and those who watch the banks and
the ANZ was forced to issued a statement on its outlook after a share price query this morning from
the Australian Securities Exchange.

In its statement the ANZ says it's first half profit will be 15 per cent lower this time around at
just under $2-billion and that has been prompted by more credit risks on derivatives and a review
of its credit provisions.

BRENDAN TREMBATH: Business editor Peter Ryan.