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Bad debts rise at Westpac -

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Reporter: Sue Lannin

ELEANOR HALL: Australia's biggest bank announced today that its bad debts jumped more than fivefold
in the first three months of this financial year.

Westpac says this was mainly due to some large corporate collapses, but its earnings fell by only
two per cent over the period, coming in at around $1.2-billion.

Finance reporter Sue Lannin has more.

SUE LANNIN: There's always close attention paid to the statements of Reserve Bank officials, and
this morning was no exception.

(Sound of applause)

MALCOLM EDEY: Thanks very much, I'm going to be talking this morning mostly about the global
economic outlook.

SUE LANNIN: Assistant Governor, Malcolm Edey told a packed business conference that 2009 was likely
to the weakest year for the global economy since the Second World War.

MALCOLM EDEY: The downturn in the G7 economies intensified in the December quarter, and at the same
time it spread to other parts of the world including Asia, Latin America and Eastern Europe.

For the world economy as a whole, 2009 is shaping up as a very difficult year.

SUE LANNIN: Despite his concerns, Malcolm Edey had an upbeat message for Australia.

He says the fall in world economic growth in the December quarter, could be one-off because of a
dive in confidence and a drop in demands.

And he believes Australia remains resilient.

MALCOLM EDEY: There are reasons to expect that the Australian economy can continue to perform
better than its overseas counterparts in the difficult period that lies ahead.

Australia had more momentum than most comparable economies in the period leading into the crisis,
but an important difference is that the Australian financial system remains in much better shape
than its international counterparts.

As a result of that, we've been able to gain much more traction from cuts in official interest
rates.

SUE LANNIN: Across town, the Westpac chief executive Gail Kelly was outlining the state of her bank
and the economy in a trading update.

GAIL KELLY: Perhaps the one certainty for us is that 2009 will be a challenging year. Turning to
Westpac, against this background, we would describe our first quarter performance as robust.

SUE LANNIN: Despite the downturn, Westpac still made $1.2-billion in the last quarter of 2008.

Bad debts rose more than five times to more than $800-million, that's due to the collapse of
childcare provider ABC Learning, Allco Finance Group, and a $300-million loan to Babcock and Brown
International.

GAIL KELLY: Impairments are $800-million for the quarter, as against the $144-million in the prior
corresponding period. We're also seeing a broad based deterioration in our commercial portfolios in
line with the deteriorating economy, and as you may expect we're taking a prudent and realistic
approach to provisioning the portfolio.

Pleasingly, the Australian consumer portfolio remains solid.

SUE LANNIN: It's the same story at the other big banks; a big rise in bad debts as the economy
worsens.

Last week the Commonwealth Bank said it may need to cut dividend payouts to shareholders, but Gail
Kelly says no decision has been made yet at Westpac.

GAIL KELLY: As you know decisions around dividends are board decisions, and the board will next
address this topic at the time of the first half results, which is some time away.

A range of factors will be considered including shareholder perspectives. The board will also have
a consideration of just how deep and how long the current economic downturn will be and, of course,
the need to retain a strong capital position.

SUE LANNIN: She says its likely more fiscal stimulus plans are on the cards.

Turnover from retail sales rose an estimated 0.8 of one per cent in the December quarter, possibly
boosted by the Federal Government's first spending package.

ELEANOR HALL: Finance reporter, Sue Lannin.